Pro-rich Inflation and Optimal Income Taxation

Eren Gürer and Alfons Weichenrieder

Public Finance Review, 2021, vol. 49, issue 6, 815-844

Abstract: We study the implications of an increase in the price of necessities, which disproportionally hurts the poor, for optimal income taxation. When the government is utilitarian and disutility from labor supply is linear, the optimal nominal taxes and transfers are unchanged as households supply more labor to secure their consumption expenditures. Quantitative analyses with convex disutility of labor supply reveal that, because of positive labor supply effects, keeping average tax rates constant suffices to optimally react to the asymmetric price shock. The poorest agents increase their labor supply the most. Thus, optimal income tax policy in response to asymmetric price changes does not prevent the disproportional decline in the indirect utility of poorer households.

Keywords: Pro-rich inflation; optimal income taxation; JEL Classification Codes; H21; E31 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/10911421221077784 (text/html)

Related works:
Working Paper: Pro-Rich Inflation and Optimal Income Taxation (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:49:y:2021:i:6:p:815-844

DOI: 10.1177/10911421221077784

Access Statistics for this article

More articles in Public Finance Review
Bibliographic data for series maintained by SAGE Publications ().