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Redistributive Taxation in the Roy Model

Casey Rothschild () and Florian Scheuer ()

No 18228, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We consider optimal redistribution in a model where individuals can self-select into one of several possible sectors based on heterogeneity in a multidimensional skill vector. We first show that when the government does not observe the sectoral choice or underlying skills of its citizens, the constrained Pareto frontier can be implemented with a single non-linear income tax. We then characterize this optimal tax schedule. If sectoral inputs are complements, a many-sector model with self-selection leads to optimal income taxes that are less progressive than the corresponding taxes in a standard single-sector model under natural conditions. However, they are more progressive than in canonical multi-sector economies with discrete types and without occupational choice or overlapping sectoral wage distributions.

JEL-codes: D5 D80 E2 E6 H2 J3 J6 (search for similar items in EconPapers)
Date: 2012-07
New Economics Papers: this item is included in nep-pbe
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Published as Casey Rothschild, 2013. "Redistributive Taxation in the Roy Model," The Quarterly Journal of Economics, Oxford University Press, vol. 128(2), pages 623-668.

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