A Fair Day's Pay for a Fair Day's Work: Optimal Tax Design as Redistributional Arbitrage

Christian Hellwig and Nicolas Werquin

No 16863, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study optimal tax design based on the idea that policy-makers face trade-offs between multiple margins of redistribution. Within a Mirrleesian economy with earnings, consumption and retirement savings, we derive a novel formula for optimal non-linear income and savings distortions based on redistributional arbitrage. We establish a sufficient statistics representation of the labor income and capital tax rates on top income earners, which relies on the comparison between the Pareto tails of income and consumption. Because consumption is more evenly distributed than income, it is optimal to shift a substantial fraction of the top earners' tax burden from income to savings. Our results extend to economies with one-dimensional heterogeneity and general preferences over an arbitrary set of commodities.

JEL-codes: D31 H21 (search for similar items in EconPapers)
Date: 2022-01
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP16863 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: A Fair Day's Pay for a Fair Day's Work: Optimal Tax Design as Redistributional Arbitrage (2022)
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:cpr:ceprdp:16863

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP16863

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().