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Optimal Non-Welfarist Income Taxation for Inequality and Polarization Reduction

Vincenzo Prete (), Alessandro Sommacal () and Claudio Zoli ()
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Vincenzo Prete: Department of Economics (University of Verona)

No 23/2016, Working Papers from University of Verona, Department of Economics

Abstract: We adopt a non-welfarist approach to investigate the effect of different redistributive objectives on the shape of the optimal tax schedule. We consider inequality and income polarization reduction objectives and we identify socially desirable three brackets piecewise linear tax systems that allow to collect a given revenue. The optimal tax problem is formalized as the maximization of families of rank-dependent social evaluation function defined over net incomes. These functions allow to incorporate within the same social evaluation model concerns for inequality and for polarization reduction. Both with fixed and variable labour supply the optimal tax schemes substantially differ as the focus moves from the reduction of inequality to the one of polarization. In the case of inequality concerns the optimal tax system is mainly convex exhibiting increasing marginal tax rates unless when labour supply elasticities are higher. While in case of polarization concerns the optimal tax scheme is not-convex with reduced marginal tax rate for the upper income bracket.

Keywords: Non welfarism; Rank-dependent social evaluation function; Optimal Taxation; Inequality; Polarization. (search for similar items in EconPapers)
JEL-codes: D31 D63 H21 (search for similar items in EconPapers)
Pages: 50
Date: 2016-12
New Economics Papers: this item is included in nep-pbe and nep-pub
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