Optimal Taxation and Other-Regarding Preferences

Thomas Aronsson () and Olof Johansson-Stenman ()
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Thomas Aronsson: University of Umea, Sweden and University of Graz, Austria
Olof Johansson-Stenman: University of Gothenburg, Sweden

No 2024-22, Graz Economics Papers from University of Graz, Department of Economics

Abstract: We analyze optimal redistributive income taxation within a Mirrleesian framework that incorporates other-regarding preferences, examining both a general model and four specific cases. Two of these reflect self-centered inequality aversion, based on models by Fehr & Schmidt and Bolton & Ockenfels, respectively, while the other two reflect non-self-centered inequality aversion, where individuals prefer a low Gini coefficient and a high minimum disposable income. We find that other-regarding preferences can substantially increase the income tax rates, including top income tax rates, and enhance the overall redistribution. Furthermore, different types of other-regarding preferences have markedly different implications for optimal taxation.

Keywords: Optimal Taxation; Redistribution; Social Preferences; Inequality Aversion. (search for similar items in EconPapers)
JEL-codes: D62 D90 H21 H23 (search for similar items in EconPapers)
Date: 2024-12
New Economics Papers: this item is included in nep-ltv, nep-pbe, nep-pub and nep-upt
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