The Efficient Side of Progressive Income Taxation
17 Pages Posted: 29 Dec 2000
Date Written: November 2000
Abstract
This paper examines the allocative implications of progressive income taxation when individuals care about their relative income. It shows that tax progressivity might improve efficiency, and the more so in egalitarian economies. Introducing a progressive income tax can yield a Pareto improvement if pre-tax income is evenly distributed. Implementing undistorted choices of working hours requires a progressive tax schedule, and the optimal degree of progressivity decreases with pre-tax income inequality.
Keywords: Progressive income tax, inequality, social status
JEL Classification: H2, J2
Suggested Citation: Suggested Citation
Corneo, Giacomo, The Efficient Side of Progressive Income Taxation (November 2000). Available at SSRN: https://ssrn.com/abstract=254572 or http://dx.doi.org/10.2139/ssrn.254572
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