Optimal Redistributive Taxation with both Extensive and Intensive Responses

Laurence Jacquet, Etienne Lehmann () and Bruno Van der Linden

No 2010033, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: We derive a general optimal income tax formula when individuals respond along both the intensive and extensive margins and when income effects can prevail. Individuals are heterogeneous across two dimensions: their skill and their disutility of participation. Preferences over consumption and work effort can differ with respect to the level of skill, with only the Spence-Mirrlees condition being imposed. Employing a new tax perturbation approach that integrates the nonlinearity of the tax function into the behavioral elasticities, we derive a fairly mild condition for optimal marginal tax rates to be nonnegative everywhere. Numerical simulations using U.S. data confirm the mildness of our conditions. The extensive margin strongly reduces the level of optimal marginal tax rates.

Keywords: Optimal tax formula; Tax perturbation; Random participation (search for similar items in EconPapers)
JEL-codes: H21 H23 (search for similar items in EconPapers)
Pages: 39
Date: 2010-09-02
New Economics Papers: this item is included in nep-acc, nep-cmp, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://sites.uclouvain.be/econ/DP/IRES/2010033.pdf (application/pdf)

Related works:
Journal Article: Optimal redistributive taxation with both extensive and intensive responses (2013)
Working Paper: Optimal Redistributive Taxation with both Extensive and Intensive Responses (2010)
Working Paper: Optimal Redistributive Taxation with both Extensive and Intensive Responses (2010)
Working Paper: Optimal Redistributive Taxation with both Extensive and Intensive Responses (2010)
Working Paper: Optimal Redistributive Taxation with Both Extensive and Intensive Responses (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2010033

Access Statistics for this paper

More papers in LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Place Montesquieu 3, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Virginie LEBLANC ().