Balancing the Equity-efficiency Trade-off in Personal Income Taxation: An Evolutionary Approach

Simone Pellegrino, Guido Perboli () and Giovanni Squillero ()
Additional contact information
Guido Perboli: Department of Control and Computer Engineering, Politecnico di Torino, Italy
Giovanni Squillero: Department of Control and Computer Engineering, Politecnico di Torino, Italy

No 44, Working papers from Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino

Abstract: In this paper we propose a multi-objective evolutionary algorithm for supporting the definition of a personal income tax reform. As a case study, we apply this methodology to the Italian income tax, and consider a recently implemented tax cut. Our optimization algorithm is able to determine a set of tax structures that maximize the redistributive effect of the tax while minimizing its inefficiency - considering for the former the Reynolds-Smolensky index and for the latter the weighted average of taxpayers' effective marginal tax rates. The approach also takes into account two additional factors: the tax has to guarantee a specific revenue and to minimize the share of losing taxpayers with respect to the pre-reform situation. Experimental results clearly demonstrate that the methodology we employ can support the policy-maker's decisions in complex, real- world situations.

Keywords: Personal Income Tax; Evolutionary Algorithms; Multi-Objective Optimization (search for similar items in EconPapers)
JEL-codes: H23 H24 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2017-10
New Economics Papers: this item is included in nep-cmp, nep-cta, nep-eur and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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http://www.bemservizi.unito.it/repec/tur/wpapnw/m44.pdf First version, 2017 (application/pdf)

Related works:
Journal Article: Balancing the equity-efficiency trade-off in personal income taxation: an evolutionary approach (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:tur:wpapnw:044

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