Optimal redistributive taxation with both extensive and intensive responses

Laurence Jacquet, Etienne Lehmann () and Bruno Van der Linden

Journal of Economic Theory, 2013, vol. 148, issue 5, 1770-1805

Abstract: We study optimal income taxation when labor supply reacts along the intensive and extensive margins. Individuals are heterogeneous across two unobserved dimensions: their skill and disutility of participation. We develop a new method to analytically derive conditions under which optimal marginal tax rates are non-negative everywhere. It is typically optimal to provide a distinct level of transfer to the non-employed and to workers with negligible earnings. Numerical simulations illustrate these properties for the US. We also apply our method to sign output distortions in other adverse selection frameworks with random participation, namely the monopoly nonlinear pricing and the regulatory monopoly problems.

Keywords: Optimal taxation; Intensive margin; Extensive margin; Marginal tax rates; Random participation (search for similar items in EconPapers)
JEL-codes: H21 H23 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (114)

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Related works:
Working Paper: Optimal Redistributive Taxation with both Extensive and Intensive Responses (2010)
Working Paper: Optimal Redistributive Taxation with both Extensive and Intensive Responses (2010)
Working Paper: Optimal Redistributive Taxation with both Extensive and Intensive Responses (2010)
Working Paper: Optimal Redistributive Taxation with both Extensive and Intensive Responses (2010)
Working Paper: Optimal Redistributive Taxation with Both Extensive and Intensive Responses (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:5:p:1770-1805

DOI: 10.1016/j.jet.2013.07.019

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