Pareto-improving tax reforms and the Earned Income Tax Credit

Felix Bierbrauer (), Pierre Boyer and Emanuel Hansen ()
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Felix Bierbrauer: Center for Macroeconomic Research, University of Cologne
Emanuel Hansen: Center for Macroeconomic Research, University of Cologne

No 1, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: This paper provides necessary and sufficient conditions for the existence of Pareto-improving tax reforms. The conditions can be expressed as sufficient statistics and have a wide range of potential applications in public finance. We discuss one such application in detail: the introduction of the Earned Income Tax Credit (EITC) in the US. We find that the EITC can be viewed as a response to an inefficiency in the tax and transfer system prevailing at the time. This adds a newperspective to the literature on why the EITC is a good idea, emphasizing Pareto improvements rather than equity-efficiency trade-offs.

Keywords: Tax reforms; Non-linear income taxation; Optimal taxation; Earned Income Tax Credits; Pareto Efficiency (search for similar items in EconPapers)
JEL-codes: C72 D72 D82 H21 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2020-06
New Economics Papers: this item is included in nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_001_2020.pdf First version, 2020 (application/pdf)

Related works:
Journal Article: Pareto‐Improving Tax Reforms and the Earned Income Tax Credit (2023)
Working Paper: Pareto-Improving Tax Reforms and the Earned Income Tax Credit (2020)
Working Paper: Pareto-improving tax reforms and the Earned Income Tax Credit (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:001

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