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Balancing the equity-efficiency trade-off in personal income taxation: an evolutionary approach

Simone Pellegrino (), Guido Perboli () and Giovanni Squillero ()
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Simone Pellegrino: University of Turin
Guido Perboli: Politecnico di Torino
Giovanni Squillero: Politecnico di Torino

Economia Politica: Journal of Analytical and Institutional Economics, 2019, vol. 36, issue 1, 37-64

Abstract: Abstract In this paper we propose a multi-objective evolutionary algorithm for supporting the definition of a personal income tax reform. As a case study, we apply this methodology to the Italian income tax, and consider a recently implemented tax cut. Our optimization algorithm can determine a set of tax structures that maximize the redistributive effect of the tax while minimizing its inefficiency—considering for the former the Reynolds–Smolensky index and for the latter the weighted average of taxpayers’ effective marginal tax rates. The approach also takes into account two additional factors: the tax has to guarantee a specific revenue and to minimize the share of losing taxpayers with respect to the pre-reform situation. Experimental results demonstrate that the methodology we employ can support the policymaker’s decisions in complex, real-world situations.

Keywords: Personal Income Tax; Evolutionary algorithms; Multi-objective optimization (search for similar items in EconPapers)
JEL-codes: C63 C81 H23 H24 (search for similar items in EconPapers)
Date: 2019
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Economia Politica: Journal of Analytical and Institutional Economics is currently edited by Alberto Quadrio Curzio

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Handle: RePEc:spr:epolit:v:36:y:2019:i:1:d:10.1007_s40888-018-0132-4