Generalized compensation principle

Karl Schulz (), Aleh Tsyvinski () and Nicolas Werquin ()
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Karl Schulz: Department of Economics, University of St. Gallen
Aleh Tsyvinski: Department of Economics, Yale University
Nicolas Werquin: Research Department, Federal Reserve Bank of Chicago

Theoretical Economics, 2023, vol. 18, issue 4

Abstract: Economic disruptions generally create winners and losers. The compensation problem consists of designing a reform of the existing income tax system that offsets the welfare losses of the latter by redistributing the gains of the former. We derive a formula for the compensating tax reform and its impact on the government budget when only distortionary tax instruments are available and wages are determined endogenously in general equilibrium. We apply this result to the compensation of robotization in the U.S.

Keywords: Compensation principle; distortionary taxation; general equilibrium; wage disruption (search for similar items in EconPapers)
JEL-codes: D61 D63 H21 H31 (search for similar items in EconPapers)
Date: 2023-11-09
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Citations: View citations in EconPapers (1)

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