Optimal taxation in the extensive model

Philippe Choné and Guy Laroque

Journal of Economic Theory, 2011, vol. 146, issue 2, 425-453

Abstract: We study optimal taxation under extensive preferences: the agents[modifier letter apostrophe] utilities are constant for positive actions up to a maximal productivity level. Utilities may be discontinuous at the origin, reflecting fixed costs of participation. Allowing for general distributions of work opportunity costs and productivity and for income effects, we characterize optimal, incentive-compatible tax schedules. We then give sufficient conditions for society to desire redistribution. When these conditions hold, upward distortions of the financial incentives to work can only occur for low-skilled workers. Such upwards distortions are indeed always present when the fixed participation costs are pecuniary.

Keywords: Optimal; taxation; Extensive; model; Welfare (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (49)

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Working Paper: Optimal taxation in the extensive model (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:146:y:2011:i:2:p:425-453

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