Pareto-improving tax reforms and the Earned Income Tax Credit

Felix Bierbrauer, Pierre Boyer and Emanuel Hansen

No 14853, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper provides necessary and suffcient conditions for the existence of Pareto-improving tax reforms. The conditions can be expressed as suffcient 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 new perspective to the literature on why the EITC is a good idea, emphasizing Pareto improvements rather than equity-efficiency trade-offs.

Keywords: Optimal taxation; Tax reforms; Non-linear income taxation; Earned income tax credit (search for similar items in EconPapers)
JEL-codes: C72 D72 D82 H21 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (13)

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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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