The case for NIT+FT in Europe. An empirical optimal taxation exercise

Nizamul Islam and Ugo Colombino

No 2018-08, LISER Working Paper Series from Luxembourg Institute of Socio-Economic Research (LISER)

Abstract: We present an exercise in empirical optimal taxation for a sample of European countries from three areas: Southern, Central and Northern Europe. For each country, we estimate a microeconometric model of labour supply for both couples and singles. A procedure that simulates the households’ choices under given tax-transfer rules is then embedded in a constrained optimization program in order to identify optimal rules under the public budget constraint. The optimality criterion is the class of Kolm’s social welfare function. The tax-transfer rules considered as candidates are members of a class that includes as special cases various versions of the Negative Income Tax: Conditional (means-tested) Basic Income, Unconditional Basic Income, In-Work Benefits and General Negative Income Tax, combined with a Flat Tax above the exemption level. The analysis in most cases show that: the General Negative Income Tax strictly dominates the other rules, including the current ones; the Unconditional Basic Income policy is better than the Conditional Basic Income policy; Conditional Basic Income policy may lead to a significant reduction in labour supply and poverty-trap effects; In-Work-Benefit policy is strictly dominated by the General Negative Income Tax and by the Unconditional Basic Income.

Keywords: Basic Income; Negative Income Tax; Optimal tax; Micro-simulation; Welfare (search for similar items in EconPapers)
JEL-codes: C18 H21 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2018-04
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: The case for NIT+FT in Europe. An empirical optimal taxation exercise (2018)
Working Paper: The case for NIT+FT in Europe. An empirical optimal taxation exercise (2017)
Working Paper: The case for NIT+FT in Europe. An empirical optimal taxation exercise (2017)
Working Paper: The Case for NIT+FT in Europe: An Empirical Optimal Taxation Exercise (2017)
Working Paper: The case for NIT+FT in Europe. An empirical optimal taxation exercise (2017)
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