Many-Person Ramsey Rule and Nonlinear Income Taxation

Stephane Gauthier and Fanny Henriet

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: We provide a necessary condition for optimal commodity taxes when agents differ according to labor skill and consumption tastes and when the government can also use a general nonlinear tax on labor income. The discouragement index of commodities in shown to be the sum of (1) the distributive factors over the different income classes and (2) the excess demand of mimickers. The first component arises whenever there is taste heterogeneity within income classes. The second one arises whenever there is taste heterogeneity between income classes. In an empirical application from Canadian microdata we delineate groups of households with homogeneous tastes based on nonviolation of revealed preferences. Assuming that indirect taxes are set optimally, we identify the relevant incentive constraints and provide estimates for social values of the different groups. Redistribution from indirect taxes favors households living in rural Quebec.

Keywords: taste heterogeneity; commodity taxes; income taxation; redistribution; empirical tests for asymmetric information; social weights (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-pbe
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01164011v1
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Published in 2015

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Working Paper: Many-Person Ramsey Rule and Nonlinear Income Taxation (2015)
Working Paper: Many-Person Ramsey Rule and Nonlinear Income Taxation (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-01164011

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