Fair and Efficent Taxation Under Partial Control

39 Pages Posted: 23 Jan 2014

See all articles by Erwin Ooghe

Erwin Ooghe

Catholic University of Leuven (KUL) - Center for Economic Studies

Andreas Peichl

ZEW – Leibniz Centre for European Economic Research; University of Mannheim - School of Economics (VWL); IZA Institute of Labor Economics; University of Essex - Institute for Social and Economic Research (ISER)

Date Written: December 19, 2013

Abstract

We study fair and efficient tax-benefi…t schemes based on income and non-income factors under partial control. Partial control means that each factor is a speci…fic mixture of unobserved ability (randomly drawn by nature) and effort (chosen by individuals who differ in tastes). Factors differ in the degree of control, ranging from no control (if only ability matters) to full control (if only effort matters). Fairness requires to compensate individuals for differences in well-being caused by differences in abilities, while at the same time preserving well-being differences caused by taste differences. We discuss fi…rst the general properties of fair and efficient tax-benefi…t schemes. Next, we study two special cases— income taxation and tagging— in detail. Finally, we derive testable conditions for the general case and discuss the empirical implementation.

Keywords: fairness, redistribution, taxation, tagging, equality of opportunity

JEL Classification: D6, H2, I3

Suggested Citation

Ooghe, Erwin and Peichl, Andreas, Fair and Efficent Taxation Under Partial Control (December 19, 2013). ZEW - Centre for European Economic Research Discussion Paper No. 14-002, Available at SSRN: https://ssrn.com/abstract=2383242 or http://dx.doi.org/10.2139/ssrn.2383242

Erwin Ooghe

Catholic University of Leuven (KUL) - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Andreas Peichl (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Mannheim - School of Economics (VWL) ( email )

Mannheim 68131
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University of Essex - Institute for Social and Economic Research (ISER)

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

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