A Comparison of Optimal Tax Policies When Compensation or Responsibility Matter

49 Pages Posted: 3 Apr 2010

See all articles by Laurence Jacquet

Laurence Jacquet

Catholic University of Louvain - Economic & Social Research Institute (IRES)

Dirk Van de Gaer

Ghent University - Department of Social Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2010

Abstract

This paper examines optimal redistribution in a model with high- and low-skilled individuals with heterogeneous tastes for labor. We compare the extent to which optimal policies based on different normative criteria obey the principles of compensation (for differential skills) and responsibility (for preferences for labor) when labor supply is along the extensive margin. With heterogeneity in skills and preferences, traditional Welfarist criteria including Utilitarianism present unappealing policy recommendations in some scenarios as they fail to take compensation and responsibility issues into account. Criteria from the social choice literature perform better in this regard in first-and second-best. More importantly, these equality of opportunity criteria push the second-best policy away from an Earned Income Tax Credit and in the direction of a Negative Income Tax.

Keywords: optimal income taxation, equality of opportunity, heterogeneous preferences for labor

JEL Classification: H21, D63

Suggested Citation

Jacquet, Laurence and Van de Gaer, Dirk, A Comparison of Optimal Tax Policies When Compensation or Responsibility Matter (March 1, 2010). CESifo Working Paper Series No. 2997, Available at SSRN: https://ssrn.com/abstract=1581348 or http://dx.doi.org/10.2139/ssrn.1581348

Laurence Jacquet (Contact Author)

Catholic University of Louvain - Economic & Social Research Institute (IRES) ( email )

B-1348 Louvain-la-Neuve
Belgium

Dirk Van de Gaer

Ghent University - Department of Social Economics ( email )

Hoveniersberg 24
Gent, 9000
Belgium

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