Author: Stefanie Stantcheva
Publisher:
ISBN:
Category :
Languages : en
Pages : 44
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Book Description
This paper studies optimal linear and nonlinear redistributive income taxation when there is adverse selection in the labor market. Unlike in standard taxation models, firms do not know workers' abilities and competitively screen them through nonlinear compensation contracts. The equilibrium concept used is the Miyazaki-Wilson-Spence (MWS) one, adapted to a labor market with taxes. The government observes neither abilities nor the private market contracts and has to foresee the reaction of firms, in addition to workers. Adverse selection leads to different responses to taxes than in the standard Mirrlees (1971) model, because of the use of work hours as a screening tool by firms, which for higher talent workers results in a rat race. Accordingly, the new optimal income tax formulas include corrective terms for the rat race and redistributive terms take into account the informational rents and cross-subsidies received by lower productivity workers. The most surprising result is that, if the government has sufficiently strong redistributive goals, welfare is higher when there is adverse selection than when there is not. This result is due to the rat race in which high productivity workers are caught, which limits their flexibility to react adversely to distortive taxation. I draw the link to policy praxis by discussing various policies that a government can use to endogenously affect adverse selection. The model also has practical implications for the interpretation, estimation, and use of taxable income elasticities, which are central to optimal tax design.
Author: Spencer Bastani
Publisher:
ISBN:
Category :
Languages : en
Pages : 17
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Author: Bruce C. Greenwald
Publisher: Dissertations-G
ISBN:
Category : Business & Economics
Languages : en
Pages : 330
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Author: Mathias Hungerbühler
Publisher:
ISBN:
Category :
Languages : en
Pages : 31
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Author: Paweł Doligalski
Publisher:
ISBN:
Category : Fiscal policy
Languages : en
Pages : 136
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Book Description
How should we tax people's incomes? I address this question from three di erent angles. The rst chapter describes the optimal income tax when people can hide earnings by working in a shadow economy. The second chapter examines the optimal taxation of employees when rms can insure their workers and help them avoid taxes. The nal chapter shows that a basic income policy - an unconditional cash transfer to every citizen - can, under certain conditions, be justi ed on e ciency grounds. In `Optimal Redistribution with a Shadow Economy', written jointly with Luis Rojas, we examine the constrained e cient allocations in the Mirrlees (1971) model with an informal sector. There are two labor markets: formal and informal. The planner observes only income from the formal market. We show that the shadow economy can be welfare improving through two channels. It can be used as a shelter against tax distortions, raising the e ciency of labor supply, and as a screening device, bene ting redistribution. We calibrate the model to Colombia, where 58% of workers are employed informally. The optimal share of shadow workers is close to 22% for the Rawlsian planner and less than 1% for the Utilitarian planner. Furthermore, we nd that the optimal tax schedule is very di erent then the one implied by the Mirrlees (1971) model without the informal sector. New Dynamic Public Finance describes the optimal income tax in the economy without private insurance opportunities. In `Optimal Taxation with Permanent Employment Contracts' I extend this framework by introducing permanent employment contracts which facilitate insurance provision within rms. The optimal tax system becomes remarkably simple, as the government outsources most of the insurance provision to employers and focuses mainly on redistribution. When the government wants to redistribute to the poor, a dual labor market can be optimal. Less productive workers are hired on a xed-term basis and are partially insured by the government, while the more productive ones enjoy the full insurance provided by the permanent employment. Such arrangement can be preferred, as it minimizes the tax avoidance of top earners. I provide empirical evidence consistent with the theory and characterize the constrained e cient allocations for Italy. When does paying a strictly positive compensation in every state of the world improves incentives to exert e ort? In 'Minimal Compensation and Incentives for E ort' I show that in the typical model of moral hazard it happens only when the e ort is a strict complement to consumption. If the cost of e ort is monetary, a positive minimal compensation strengthens incentives only when the agent is prudent and always does so when the marginal utility of consumption is unbounded at zero consumption. I discuss potential applications of these results in personal income taxation. The minimal compensation can be interpreted as a basic income - an unconditional cash transfer to every citizen. Therefore, I provide an e ciency rationale for the basic income.
Author: Robin Boadway
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
In this paper, we study optimal income taxation when different job types exist for workers of different skills. Each job type has some feasible range of incomes from which workers choose by varying labor supply. Workers are more productive than others in the jobs that suit them best. The model combines features of the classic optimal tax literature with labor variability along the intensive margin, with the extensive-margin approach where workers make discrete job choices and/or participation decisions. We find that first-best maximin utility can be achieved in the second-best, and marginal tax rates below the top can be negative or zero.
Author: Robert J. Gary-Bobo
Publisher:
ISBN:
Category : College graduates
Languages : en
Pages : 39
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Author: Louis Kaplow
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
This article explores subjects in optimal income taxation characterized by recent research interest, practical importance in light of concerns about inequality, potential for misunderstanding, and prospects for advancement. Throughout, the analysis highlights paths for further investigation. Areas of focus include multidimensional abilities and endogenous wages; asymmetric information and the income of founders; production and consumption externalities from labor effort; market power and rents; behavioral phenomena relating to perceptions of the income tax schedule, myopic labor supply, and the interactions of savings, savings policies, and labor supply; optimal income transfers; the relationship between optimal income taxation and the use of other instruments; and issues relating to the social welfare function and utility functions, including nonwelfarist objectives, welfare weights, heterogeneous preferences, and taxation of the family.
Author: Joel Slemrod
Publisher: MIT Press
ISBN: 0262319012
Category : Business & Economics
Languages : en
Pages : 235
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Book Description
An approach to taxation that goes beyond an emphasis on tax rates to consider such aspects as administration, compliance, and remittance. Despite its theoretical elegance, the standard optimal tax model has significant limitations. In this book, Joel Slemrod and Christian Gillitzer argue that tax analysis must move beyond the emphasis on optimal tax rates and bases to consider such aspects of taxation as administration, compliance, and remittance. Slemrod and Gillitzer explore what they term a tax-systems approach, which takes tax evasion seriously; revisits the issue of remittance, or who writes the check to cover tax liability (employer or employee, retailer or consumer); incorporates administrative and compliance costs; recognizes a range of behavioral responses to tax rates; considers nonstandard instruments, including tax base breadth and enforcement effort; and acknowledges that tighter enforcement is sometimes a more socially desirable way to raise revenue than an increase in statutory tax rates. Policy makers, Slemrod and Gillitzer argue, would be well advised to recognize the interrelationship of tax rates, bases, enforcement, and administration, and acknowledge that tax policy is really tax-systems policy.
Author: C. V. Brown
Publisher: Routledge
ISBN: 0429655851
Category : Business & Economics
Languages : en
Pages : 402
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Book Description
First published in 1981. This book reports on a decade of research into the effects of taxation on the supply of labour. In addition to their work in making labour supply estimates, the study explores a number of the ways labour supply estimates can be used. When budget constraints are non-linear it is not possible to estimate the effects of (tax) or other policy changes from knowledge of labour supply elasticities alone, and it is necessary to re-estimate the original model used to derive the estimates. The implications of labour supply estimates for the study of inequality and optimal taxation are considered. Macro-economic models of the economy typically omit labour supply functions or include functions which are inconsistent with micro-economic work on labour supply. This book will appeal to academic economists, senior students and policy-makers in the field of public finance and labour economics, who will find much of interest from both the theoretical and policy standpoints.
