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Taxes And Employment Subsidies In Optimal Redistribution Programs

Author

Listed:
  • Beaudry, Paul

    (University of British Columbia, and NBER)

  • Blackorby, Charles

    (University of Warwick and GREQAM)

Abstract

This paper explores how to optimally set tax and transfers when taxation authorities : (1) are uninformed about individuals’ value of time in both market and non-market activities and (2) can observe both market-income and time allocated to market employment. In contrast to much of the optimal income taxation literature, we show that optimal redistribution in this environment involves distorting market employment upwards for low net-income individuals through phased-out wage-contingent employment subsidies, and distorting employment downward for high net-income individuals through positive and increasing marginal income tax rate. We also show that workfare may also be used as part of an optimal redistribution program.

Suggested Citation

  • Beaudry, Paul & Blackorby, Charles, 2004. "Taxes And Employment Subsidies In Optimal Redistribution Programs," The Warwick Economics Research Paper Series (TWERPS) 708, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:708
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    File URL: https://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp708.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Taxation ; Redistribution ; Wage Subsidies Screening;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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