The Second-Best Lump-Sum Taxation of Observable Characteristics

John Bennett ()

Public Finance = Finances publiques, 1987, vol. 42, issue 2, 227-35

Abstract: A system of lump-sum taxes/subsidies based on easily observable nonshiftable characteristics (such as age or type of disability) is considered. To calculate the tax schedule, the government must first have an estimate of the wage rate density function for each category of characteristics. An individual's tax liability is then determined using his/her characteristics as a screening device. This scheme may also be used to compensate for labor market discrimination. Unlike first-best, lump-sum taxation, it is incentive compatible. The possible combination with linear income taxation is also considered.

Date: 1987
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Persistent link: https://EconPapers.repec.org/RePEc:pfi:pubfin:v:42:y:1987:i:2:p:227-35

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