Optimal Tax‐Transfer Systems and Redistributive Policy

Johan Fellman, Markus Jantti and Peter J. Lambert

Scandinavian Journal of Economics, 1999, vol. 101, issue 1, 115-126

Abstract: In this paper we develop “optimal yardsticks” to gauge the effectiveness of given tax and benefit policies in reducing inequality. We show that the conjunction of the optimal tax and optimal benefits policies constitutes the optimal tax‐and‐benefit policy, given the tax and benefit budget sizes. A decomposition formula enables trends in the inequality impact of taxes and benefits to be explained in terms of changing policy effectivess (targeting) and budget size effects. The analysis incorporates a distributional judgement parameter, for sensitivity analysis, and concludes with an examination of the Finnish case for the period 1971–1990. JEL Classification: D63

Date: 1999
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