Taxation and Tournaments

Mats Persson () and Agnar Sandmo ()
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Mats Persson: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden
Agnar Sandmo: Norwegian School of Economics and Business Administration, Postal: Helleveien 30, N-5045 Bergen, Norway

No 715, Seminar Papers from Stockholm University, Institute for International Economic Studies

Abstract: This paper analyzes the effects of progressive taxes on labour supply and income distribution in the context of the rank-order tournament model originally developed by Lazear and Rosen (1981). We show conditions under which a more progressive tax schedule will cause so large general equilibrium effects that the inequality in disposable income will actually increase. We also show that a non-zero redistributive tax is always optimal if society’s welfare function displays inequality aversion; this result always holds, regardless of behavioral responses and general equilibrium effects.

Keywords: TBA (search for similar items in EconPapers)
JEL-codes: H00 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pub
Date: 2002-05-24
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