Normative judgments implicit in the tax system: A simulation approach

Niklas Isaak and Robin Jessen

No 1128, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: How much does society value redistribution? The common method to derive inverse-optimum welfare weights is by inverting an optimal-tax model. Our alternative imposes fewer restrictions on labor supply and enables comparisons across household types. We use a structural labor supply model to calculate the marginal value of public funds for various small tax reductions, directly linked to welfare weights. An application to Germany finds: i) The tax-transfer system is optimal if society values one additional Euro for the bottom decile three times as much as for the median. ii) At low-medium incomes, weights for couples exceed those for singles substantially

Keywords: Inverse optimum; microsimulation; marginal value of public funds; social welfare function; optimal taxation; labor supply; efficiency (search for similar items in EconPapers)
JEL-codes: H21 H31 J22 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:311299

DOI: 10.4419/96973310

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