A comparison of optimal tax policies when compensation or responsibility matter

Laurence Jacquet and Dirk Van de gaer

No 2009064, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper examines optimal redistribution in a model with high and low-skilled individuals with heterogeneous tastes for labor, that either work or not. With such double heterogeneity, traditional Welfarist criteria including Utilitarianism fail to take the compensation-responsibility trade-off into account. As a response, several other criteria have been proposed in the literature. This paper is the first to compare the extent to which optimal policies based on different normative criteria obey the principles of compensation (for differential skills) and responsibility (for preferences for labor), when labor supply is along the extensive margin. The criteria from the social choice literature perform better in this regard than the traditional criteria, both in first and second best. More importantly, these equality of opportunity criteria push the second best policy away from an Earned Income Tax Credit and in the direction of a Negative Income tax.

Keywords: optimal income taxation; equality of opportunity; heterogeneous preferences for labor (search for similar items in EconPapers)
JEL-codes: D63 H21 (search for similar items in EconPapers)
Date: 2009-10-01
New Economics Papers: this item is included in nep-pub
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Related works:
Journal Article: A comparison of optimal tax policies when compensation or responsibility matter (2011)
Working Paper: A comparison of optimal tax policies when compensation or responsibility matter (2011)
Working Paper: A Comparison of Optimal Tax Policies when Compensation or Responsibility Matter (2010)
Working Paper: A comparison of optimal tax policies when compensation or responsibility matter (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2009064

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