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Optimal Taxation and Productive Social Expenditure

Thomas Bassetti () and Luciano Greco ()
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Luciano Greco: University of Padova

No 196, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: This paper characterizes the optimal tax and expenditure policies in economies where households’ unobservable gross earnings depend on exogenous (or inherited) capabilities and input investments. In a two-class economy, optimal redistribution relies on non-linear income taxation and input public provision only if the poor households demand less input than the rich. In a multi-class economy, optimal redistribution is implemented by usual-shape, non-linear income taxation and uniform public provision of input, if inherited capability and input are economic substitutes. But, when capability and input are complements, optimal redistribution relies only on non-linear income taxation. Numerical analyses show that, when individual productivity is separable in input and capability, these factors are economic substitutes (or complements) if preferences take into account (or not) the income effects.

Keywords: In-kind redistribution; Non-linear income tax; Public provision of private goods; Opting out; Topping up; Numerical simulations (search for similar items in EconPapers)
JEL-codes: H21 H42 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2015-04
New Economics Papers: this item is included in nep-fdg, nep-pbe and nep-pub
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