Redistributive Taxation in a Roy Model

Florian Scheuer and Casey Rothschild

No 395, 2012 Meeting Papers from Society for Economic Dynamics

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 show that when the government cannot or 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 derive formulas for this optimal tax schedule. Under natural conditions, we show that 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.

Date: 2012
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Journal Article: Redistributive Taxation in the Roy Model (2013)
Working Paper: Redistributive Taxation in the Roy Model (2012)
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