Optimal Taxes and Transfers under Partial Information

Homburg Stefan () and Tim Lohse
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Homburg Stefan: Chair of Public Finance, School of Economics and Management, University of Hannover, Königsworther Platz 1, D-30167 Hannover, Germany

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 2005, vol. 225, issue 6, 622-629

Abstract: Effective from 2005, benefits for long-term unemployed have been reduced in Germany to the level of social assistance. This measure reflects the view that “all who are able to work, should work” - a view which makes sense only if the government can distinguish the disabled from the productive. In this paper we augment the standard model of optimal taxation, where the government has no information about individual productivities, by this very assumption: Partial information means that the government can distinguish the disabled from the productive, but cannot distinguish among the different productive types. An interesting proposition about the shape of optimal tax-transfer schemes under partial information is derived. Moreover, it is shown that unemployment on the side of the productive poor may still be optimal.

Keywords: Optimal taxation; employment; poverty; welfare (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Optimal Tax-Transfer-Schemes under Partial Information (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:jns:jbstat:v:225:y:2005:i:6:p:622-629

DOI: 10.1515/jbnst-2005-0604

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