Fair income tax

Marc Fleurbaey and Francois Maniquet

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Abstract: In a model where agents have unequal skills and heterogeneous preferences over consumption and leisure, we look for the optimal tax on the basis of efficiency and fairness principles and under incentive-compatibility constraints. The fairness principles considered here are: 1) a weak version of the Pigou-Dalton transfer principle; 2) a condition precluding redistribution when all agents have the same skills. With such principles we construct and justify specific social preferences and derive a simple criterion for the evaluation of income tax schedules. Namely, the lower the greatest average tax rate over the range of low incomes, the better. We show that, as a consequence, the optimal tax should give the greatest subsidies to the working poor (the agents having the lowest skill and choosing the largest labor time).

Keywords: optimal tax; fairness (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (126)

Published in Review of Economic Studies, 2006, 73, pp.55-83

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Related works:
Journal Article: Fair Income Tax (2006)
Working Paper: Fair income tax (2006)
Working Paper: Fair Income Tax (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00246842

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