Pareto-Improving Income Tax Reform

Peter Sinclair

Discussion Papers from Department of Economics, University of Birmingham

Abstract: This paper examines two tax regimes in a world where abilities to earn differ. It compares the distributions of utilities under a “flat” tax regime where all income is subject to a common tax rate, and proceeds finance a common transfer paid to all, with one with a menu of tax rates and transfers from which each can select the combination that suits him or her best. When the two regimes are optimized under a social welfare function that weights minimum utilities enough, or reflects a large enough requirement for government spending, it turns out that everyone is better off in the second regime than the first.

Keywords: Non-linear income tax; redistribution; Pareto improving tax reform (search for similar items in EconPapers)
JEL-codes: H20 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2007-07
New Economics Papers: this item is included in nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:bir:birmec:07-10

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