Pareto efficient income taxation without single-crossing

Spencer Bastani, Sören Blomquist and Luca Micheletto ()
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Luca Micheletto: Uppsala Center for Fiscal Studies

Social Choice and Welfare, 2020, vol. 55, issue 3, No 8, 547-594

Abstract: Abstract We provide a full characterization of a two-type optimal nonlinear income tax model where the single-crossing condition is violated due to an assumption that agents differ both in terms of market abilities and in terms of their needs for a work-related good. We set up a Pareto-efficient tax problem and analyze the entire second-best Pareto-frontier, highlighting several non-standard results, such as the possibility of income re-ranking relative to the laissez-faire and gaps in the Pareto-frontier.

Date: 2020
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DOI: 10.1007/s00355-020-01257-z

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