Fair Income Tax

Marc Fleurbaey and Francois Maniquet

The Review of Economic Studies, 2006, vol. 73, issue 1, 55-83

Abstract: In a model where agents have unequal skills and heterogeneous preferences over consumption and leisure, we look for the optimal tax on the basis of efficiency and fairness principles and under incentive-compatibility constraints. The fairness principles considered here are: (1) a weak version of the Pigou—Dalton transfer principle; (2) a condition precluding redistribution when all agents have the same skills. With such principles we construct and justify specific social preferences and derive a simple criterion for the evaluation of income tax schedules. Namely, the lower the greatest average tax rate over the range of low incomes, the better. We show that, as a consequence, the optimal tax should give the greatest subsidies to the working poor (the agents having the lowest skill and choosing the largest labour time). Copyright 2006, Wiley-Blackwell.

Date: 2006
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Working Paper: Fair income tax (2006)
Working Paper: Fair income tax (2006)
Working Paper: Fair Income Tax (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:73:y:2006:i:1:p:55-83

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