Optimal Redistributive Taxation with Both Extensive and Intensive Responses

Laurence Jacquet, Etienne Lehmann () and Bruno Van der Linden

No 4837, IZA Discussion Papers from IZA Network @ LISER

Abstract: This paper characterizes optimal income taxation when individuals respond along both the intensive and extensive margins. Individuals are heterogeneous across two dimensions: specifically, their skill and disutility of participation. Preferences over consumption and work effort can differ with respect to the level of skill, with only the Spence-Mirrlees condition imposed. Employing a tax perturbation approach, we derive an optimal tax formula that generalizes previous results by allowing for income effects and extensive margin responses. We provide a sufficient condition for optimal marginal tax rates to be nonnegative everywhere. We discuss the relevance of this condition with analytical examples and numerical simulations using U.S. data.

Keywords: optimal tax formula; tax perturbation; random participation (search for similar items in EconPapers)
JEL-codes: H21 H23 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2010-03
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Published - published in: Journal of Economic Theory, 2013, 148 (5), 1770-1805

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https://docs.iza.org/dp4837.pdf (application/pdf)

Related works:
Journal Article: Optimal redistributive taxation with both extensive and intensive responses (2013)
Working Paper: Optimal Redistributive Taxation with both Extensive and Intensive Responses (2010)
Working Paper: Optimal Redistributive Taxation with both Extensive and Intensive Responses (2010)
Working Paper: Optimal Redistributive Taxation with both Extensive and Intensive Responses (2010)
Working Paper: Optimal Redistributive Taxation with both Extensive and Intensive Responses (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp4837

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