Optimal Taxation According to Equality of Opportunity: A Microeconometric Simulation Analysis
The purpose of this paper is to introduce and adopt a generalised version of Roemer's (1998) Equality of Opportunity (EOp) framework, which we call extended EOp, for analysing second-best optimal income taxation. Unlike the pure EOp criterion of Roemer (1998) the extended EOp criterion allows for alternative weighting profiles in the treatment of income differentials between and within types when types are defined by (observable) circumstances that are beyond people's control. An empirical microeconometric model of labour supply in Italy is used to simulate and identify income tax-transfer rules that are optimal according to the extended EOp criterion. The tax-transfer rules are only allowed to depend on income, i.e. we look for second-best optimality. The rules are defined by a universal lump-sum transfer (positive or negative) and by one or two marginal tax rates. A rather striking result of the analysis is that the optimal tax-transfer rule turns out to be a universal lump-sum tax (with marginal tax rates equal to zero), under Roemer's pure EOp criterion as well as under the generalised EOp criterion with moderate degrees of aversion to within-type inequality. A high degree of withintype inequality aversion instead produces EOp-optimal rules with positive marginal tax rates. When the EOp-version of the Gini welfare function is adopted, the optimal tax rule turns out to be close to the actual 1993 Italian tax system, if not for the important difference of prescribing a universal lumpsum positive transfer of 3,500,000 ITL, which has no comparable counterpart in the actual system. On the other hand, when using the conventional equality of outcome (EO) criterion, the pure lump-sum tax always turns out to be optimal, at least with respect to the classes of two- and three-parameter rules. We also compute optimal rules under the additional constraint that universal lump-sum taxes are not feasible. Overall, the results suggest, somehow surprisingly, that the extended EOp approach would demand more redistribution than the EO approach.
|Date of creation:||Apr 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.carloalberto.org/child-collegiocarloalberto/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John E. Roemer & Rolf Aaberge & Ugo Colombino & Johan Fritzell & Stephen P. Jenkins & Ive Marx & Marianne Page & Evert Pommer & Javier Ruiz-Castillo & Maria Jesus SanSegundo & Torben Tranaes & Gert G., 2000.
"To what Extent do Fiscal Regimes Equalize Opportunities for Income Acquisition Among citizens?,"
272, Statistics Norway, Research Department.
- Roemer, John E. & Aaberge, Rolf & Colombino, Ugo & Fritzell, Johan & Jenkins, Stephen P. & Lefranc, Arnaud & Marx, Ive & Page, Marianne & Pommer, Evert & Ruiz-Castillo, Javier, 2003. "To what extent do fiscal regimes equalize opportunities for income acquisition among citizens?," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 539-565, March.
- John E. Roemer & Rolf Aaberge & Ugo Colombino & Johan Fritzell & Stephen P. Jenkins & Ive Marx & Marianne Page & Evert Pommer & Javier Ruiz-Castillo & Maria Jesus San Segundo & Torben Tranæs & Gert G., . "To What Extent Do Fiscal Regimes Equalize Opportunities for Income Acquisition among Citizens?," EPRU Working Paper Series 00-10, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- John E. Roemer & Rolf Aaberge & Ugo Colombino & Johan Fritzell & Stephen P. Jenkins & Ive Marx & Marianne Page & Evert Pommer & Javier Ruiz-Castillo & Maria Jesus San Segundo & Torben Tranaes & Gert G, 2000. "To What Extent do Fiscal Regimes Equalize Opportunities for Income Acquisition Among Citizens?," Discussion Papers of DIW Berlin 222, DIW Berlin, German Institute for Economic Research.
- John E. Roemer, . "To What Extent Do Fiscal Regimes Equalize Opportunities For Income Acquisition Among Citizens," Department of Economics 00-03, California Davis - Department of Economics.
- John Roemer, 2003. "To What Extent Do Fiscal Regimes Equalize Opportunities For Income Acquisition Among Citizens," Working Papers 03, University of California, Davis, Department of Economics.
- Rolf Aaberge, 2007.
"Gini’s nuclear family,"
Journal of Economic Inequality,
Springer, vol. 5(3), pages 305-322, December.
- Aaberge, Rolf, 2001. "Axiomatic Characterization of the Gini Coefficient and Lorenz Curve Orderings," Journal of Economic Theory, Elsevier, vol. 101(1), pages 115-132, November.
- Mehran, Farhad, 1976. "Linear Measures of Income Inequality," Econometrica, Econometric Society, vol. 44(4), pages 805-09, July.
- Weymark, John A., 1981. "Generalized gini inequality indices," Mathematical Social Sciences, Elsevier, vol. 1(4), pages 409-430, August.
- Aaberge, Rolf & Colombino, Ugo & Strom, Steinar, 1999. "Labour Supply in Italy: An Empirical Analysis of Joint Household Decisions, with Taxes and Quantity Constraints," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(4), pages 403-22, July-Aug..
- Ebert, Udo, 1987. "Size and distribution of incomes as determinants of social welfare," Journal of Economic Theory, Elsevier, vol. 41(1), pages 23-33, February.
- Checchi, Daniele & Fiorio, Carlo V. & Leonardi, Marco, 2013.
"Intergenerational persistence of educational attainment in Italy,"
Elsevier, vol. 118(1), pages 229-232.
- Checchi, Daniele & Fiorio, Carlo V. & Leonardi, Marco, 2008. "Intergenerational Persistence in Educational Attainment in Italy," IZA Discussion Papers 3622, Institute for the Study of Labor (IZA).
- Yaari, Menahem E., 1988. "A controversial proposal concerning inequality measurement," Journal of Economic Theory, Elsevier, vol. 44(2), pages 381-397, April.
- Checchi, Daniele & Peragine, Vito, 2005. "Regional Disparities and Inequality of Opportunity: The Case of Italy," IZA Discussion Papers 1874, Institute for the Study of Labor (IZA).
- Sen, Amartya, 1974. "Informational bases of alternative welfare approaches : Aggregation and income distribution," Journal of Public Economics, Elsevier, vol. 3(4), pages 387-403, November.
- Aaberge, R. & Colombino, U. & Strom, S. & Wennemo, T., 1998. "Evaluating alternative tax reforms in Italy with a model of joint labor supply of married couples," Structural Change and Economic Dynamics, Elsevier, vol. 9(4), pages 415-433, December.
- Roemer, J.E., 1992. "A Pragmatic Theory of Responsibility for the Egalitarian Planner," Papers 391, California Davis - Institute of Governmental Affairs.
- Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
- Donaldson, David & Weymark, John A., 1980. "A single-parameter generalization of the Gini indices of inequality," Journal of Economic Theory, Elsevier, vol. 22(1), pages 67-86, February.
- Donaldson, David & Weymark, John A., 1983.
"Ethically flexible gini indices for income distributions in the continuum,"
Journal of Economic Theory,
Elsevier, vol. 29(2), pages 353-358, April.
- DONALDSON, David & WEYMARK, John A., . "Ethically flexible Gini indices for income distributions in the continuum," CORE Discussion Papers RP 520, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Rolf Aaberge, 2000. "Characterizations of Lorenz curves and income distributions," Social Choice and Welfare, Springer, vol. 17(4), pages 639-653.
- Hey, John D & Lambert, Peter J, 1980. "Relative Deprivation and the Gini Coefficient: Comment," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 567-73, November.
When requesting a correction, please mention this item's handle: RePEc:wpc:wplist:wp05_08. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Giovanni Bert)
If references are entirely missing, you can add them using this form.