Taxation and Tournaments

Mats Persson and Agnar Sandmo

Journal of Public Economic Theory, 2005, vol. 7, issue 4, 543-559

Abstract: This paper analyzes the effects of progressive taxes on labor 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.

Date: 2005
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https://doi.org/10.1111/j.1467-9779.2005.00233.x

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Working Paper: Taxation and Tournaments (2002)
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