regressive sin taxes with an application to the optimal soda tax a common objection to sin taxes corrective taxes on goods that are thought to be overconsumed such as cigarettes alcohol and sugary drinks is that they often fall disproportionately on low income consumers this paper studies the interaction between corrective and redistributive motives in a general optimal taxation framework and delivers empirically implementable formulas for sufficient statistics for the optimal commodity tax the optimal sin tax is increasing in the price elasticity of demand increasing in the degree to which lower income consumers are more biased or more elastic to the tax decreasing in the extent to which consumption is concentrated among the poor and decreasing in income effects because income effects imply that commodity taxes create labor supply distortions contrary to common intuitions stronger preferences for redistribution can increase the optimal sin tax if lower income consumers are more responsive to taxes or are more biased as an application we estimate the optimal nationwide tax on sugar sweetened beverages using nielsen homescan data and a specially designed survey measuring nutrition knowledge and self control holding federal income tax rates constant our estimates imply an optimal federal sugar sweetened beverage tax of 1 to 2 1 cents per ounce although optimal city level taxes could be as much as 60 lower due to cross border shopping

benefits conditional on work and the nordic model abstract welfare benefits in the nordic countries are often tied to employment we argue that this is one of the factors behind the success of the nordic model where a comprehensive welfare state is associated with high employment in a general equilibrium setting the underlining mechanism works through wage moderation and job creation the benefits make it more important to hold a job thus lower wages will be accepted and more jobs created moreover we show that the incentive to acquire higher education improves further boosting employment in the long run these positive effects help in counteracting the negative impact of taxation through numerical simulations we show how this mechanism can contribute to explain the better labor market performance and more equitable income distribution of nordic countries compared to continental european ones

taxation in matching markets what is the impact of taxation in matching markets in matching markets because agents have heterogeneous preferences over potential partners welfare depends on which agents are matched to each other in equilibrium taxes in matching markets can generate inefficiency by changing who is matched to whom even if the number of workers at each firm is unaffected for markets in which workers refuse to match without a positive wage higher taxes decrease match efficiency however in more balanced matching markets where transfers may flow in either direction such as the student college market lowering taxes may decrease match efficiency because an agent can transfer enough to buy an inefficient partner only to be bought back when taxes are lowered further simulations show that in matching markets traditional deadweight loss estimates based on the change in taxable income can be substantially biased in either direction jel classification h20 j24 c78 d13

benefit incidence with incentive effects measurement errors and latent heterogeneity a case study for china abstract in what is probably the largest cash transfer program in the world today china s dibao program aims to fill all poverty gaps in theory the program creates a poverty trap with 100 benefit withdrawal rate bwr but is that what we see in practice the paper proposes an econometric method of estimating the mean bwr allowing for incentive effects measurement errors and correlated latent heterogeneity under the method s identifying assumptions a feasible instrumental variables estimator corrects for incentive effects and measurement errors and provides a bound for the true value when there is correlated incidence heterogeneity the results suggest that past methods of assessing benefit incidence using either nominal official rates or raw tabulations from survey data are deceptive the actual bwr appears to be much lower than the formal rate and is likely to be too low in the light of the literature on optimal income taxation the paper discusses likely reasons based on qualitative observations from field work the program s local implementation appears to matter far more than incentives implied by its formal rules

caught in the trap welfare s disincentive and the labor supply of single men abstract youth unemployment is particularly large in many industrialized countries and has dramatic consequences in both the short and long term while there is abundant evidence about the labor supply of married women and single mothers little is known about how young childless singles react to financial incentives the french minimum income revenu minimum d insertion rmi often accused of generating strong disincentives to work offers a natural setting to study this question since childless single individuals primarily males constitute the core group of recipients exploiting the fact that childless adults under age 25 are not eligible for this program we conduct a regression discontinuity analysis using french census data we find that the rmi reduces the participation of uneducated single men by 7 10 at age 25 we conduct an extensive robustness check and discuss the implications of our results for youth unemployment and current policy developments

does work pay in france monetary incentives hours constraints and the guaranteed minimum income abstract this paper uses a representative sample of individuals on france s main welfare program the revenu minimum d insertion or rmi to estimate monetary incentives for employment among welfare recipients based on the estimated joint distribution of wages and hours potentially offered to each individual we compute potential gains from working in a very detailed manner relating these gains to observed employment we then estimate a simple structural labor supply model we find that potential gains are almost always positive but very small on average especially for single mothers because of the high implicit marginal tax rates embedded in the system employment rates are sensitive to incentives with extensive margin elasticities for both men and women usually below one conditional on these elasticities simulations indicate that existing policies devoted to reducing marginal tax rates at the bottom of the income distribution such as the interessement earnings top up program have little impact in this population due to their very limited scope the negative income tax prime pour l emploi seems to be an exception

income maintenance and labor force participation the paper studies the optimal tax subsidy schedules in an economy where the only decision of the agents is to work or not with an application to the case of france given an income guarantee provided by the welfare state the tax schedule that maximizes government revenue provides a benchmark the laffer bound above which it is inefficient to tax in fact under mild conditions a feasible allocation is second best optimal if and only if the associated taxes are lower than the laffer bound the only restriction that efficiency puts on the shape of the tax scheme is this upper laffer bound the laffer tax scheme itself can be computed from the joint distribution of the agents productivities and work opportunity costs depending on the economy it can take widely different forms and exhibit for instance negative marginal tax rates after estimating the joint distribution of productivities and work opportunity costs on french data i compute the laffer bound for two subpopulations single women and married women with two children or more quite surprisingly the actual incentives to work appear to be very close to the bound

differential mortality and the progressivity of social security abstract there is a well established negative correlation between earnings and mortality risk using a calibrated general equilibrium macroeconomic model this paper examines how this correlation interacts with the welfare implications of social security s benefit earnings rule my primary findings suggest that the welfare ranking of alternative benefit earnings rules is somewhat sensitive to differential mortality due to their relatively high mortality risk households with unfavorable earnings histories heavily discount the expected utility from old age consumption and therefore do not put much weight on better work retirement consumption smoothing because of this reason social security s benefit earnings rule warrants less redistribution in the presence of differential mortality compared to when mortality risk is uncorrelated to earnings i find that this result continues to hold when household level labor supply distortions are ignored and also when an alternative maximin welfare criterion is considered but not when accidental bequests from the deceased are redistributed to the survivors

bounds on elasticities with optimization frictions a synthesis of micro and macro evidence on labor supply how can price elasticities be identified when agents face optimization frictions such as adjustment costs or inattention i derive bounds on structural price elasticities that are a function of the observed effect of a price change on demand the size of the price change and the degree of frictions the degree of frictions is measured by the utility losses agents tolerate to deviate from the frictionless optimum the bounds imply that frictions affect intensive margin elasticities much more than extensive margin elasticities i apply these bounds to the literature on labor supply the utility costs of ignoring the tax changes used to identify intensive margin labor supply elasticities are typically less than 1 of earnings as a result small frictions can explain the differences between micro and macro elasticities extensive and intensive margin elasticities and other disparate findings pooling estimates from existing studies i estimate a hicksian labor supply elasticity of 0 33 on the intensive margin and 0 25 on the extensive margin after accounting for frictions

optimal incentives for labor force participation abstract optimal taxation is analyzed under a rawlsian criterion in an economy where the only decision of the agents is to participate or not to the labor force the model allows for heterogeneity both in the agent s productivities and aversions to work at a first best optimal schedule the marginal agent who decides to work pockets all of her productivity while being just compensated for her work aversion when the planner does not observe work aversion financial compensation for work is lower than productivity theory puts little restrictions on the shape of the optimal tax schedules the usual first order conditions involving the elasticities of participation only apply for sufficiently regular economies we qualitatively show how the optimal incentive schemes depend on the underlying structure of the preferences 100 marginal tax rates or subsidies to work are related to specific features of the economies

technical change wage inequality and taxes this paper considers the normative implications of technical change for tax policy design a task to talent assignment model of the labor market is embedded into an optimal tax problem technical change modifies equilibrium wage growth across talents and the substitutability of talents across tasks the overall optimal policy response is to reduce marginal income taxes on low to middle incomes while raising those on middle to high incomes the reform favors those in the middle of the income distribution reducing their average taxes while lowering transfers to those at the bottom jel d31 h21 h23 h24 j31 o33

what has been learned about labor supply in the past twenty years the main advance in the study of labor supply in the past 20 years has come in recognizing and interpreting the variety of different labor supply functions that coexist in the empirical literature a crucial theoretical distinction with important empirical payoff is that between labor supply choices at the extensive margin i e labor force participation and employment choices and choices at the intensive margin i e choices about hours of work or weeks of work for workers another important distinction is the one between a descriptive labor supply function and a structural supply function that can be the basis for out of sample policy investigations concerning responses to tax and welfare programs and evaluations of welfare losses a full understanding of the participation hours dichotomy leads to an appreciation of the importance of the problem of selection bias what is the wage to impute to a nonworking person these distinctions are a legacy of the research conducted on labor supply over the past 20 years many important empirical questions have been addressed i how strong are the effects of taxes welfare and transfer programs on labor supply ii how important is intertemporal substitution can life cycle labor supply models explain business cycle labor supply behavior iii has the consensus view of the 1960 s of high labor supply elasticities for married women and low labor supply elasticities for married men held up all of the empirical evidence assembled on labor supply must be called into question in the light of important research on the basic quality of the data conducted by analysts at the university of michigan i discuss this evidence in a concluding section except for my discussion of measurement issues i focus only on the major discoveries about which a general consensus has emerged

equity and efficiency in rationed labor markets the social welfare implications of income tax policy are shown to critically depend on whether or not labor markets are rationed i e on the existence of involuntary unemployment with rationed labor markets raising taxes on the employed and transfers to the unemployed might improve both equity and efficiency it improves equity by redistributing income from the employed to the unemployed it improves efficiency as it encourages people with a small utility surplus of employment to exit the labor market leaving their jobs for people with a higher utility surplus i derive conditions under which this result continues to hold when only part of the labor market is rationed when there is both frictional and rationing unemployment and when rationing endogenously follows from trade unions monopoly power

a comparison of the labor supply findings from the four negative income tax experiments between 1968 and 1982 the united states federal government sponsored four negative income tax experiments this paper provides a set of consensus estimates of the labor supply responses to these experiments it is found that despite the wide range of treatments and evaluation methodologies the results are remarkably consistent on average husbands reduced labor supply by about the equivalent of two weeks of full time employment wives and single female heads reduced labor supply by about the equivalent of three weeks of full time employment youth reduced labor supply by about the equivalent of four weeks of full time employment estimated income and substitution effects are quite similar to those obtained from nonexperimental studies

welfare the earned income tax credit and the labor supply of single mothers during 1984 1996 welfare and tax policy were changed to encourage work by single mothers the earned income tax credit was expanded welfare benets were cut welfare time limits were added and welfare cases were terminated medicaid for the working poor was expanded as were training programs and child care during this same time period there were unprecedented increases in the employment and hours of single mothers we show that a large share of the increase in work by single mothers can be attributed to the eitc and other tax changes with smaller shares for welfare benet cuts welfare waivers training programs and child care programs

optimal minimum wage policy in competitive labor markets this paper provides a theoretical analysis of optimal minimum wage policy in a perfectly competitive labor market and obtains two key results first we show that a binding minimum wage while leading to unemployment is nevertheless desirable if the government values redistribution toward low wage workers and if unemployment induced by the minimum wage hits the lowest surplus workers first importantly this result remains true in the presence of optimal nonlinear taxes and transfers in that context a binding minimum wage enhances the effectiveness of transfers to low skilled workers as it prevents low skilled wages from falling through incidence effects second when labor supply re sponses are along the extensive margin only the co existence of a minimum wage with a positive tax rate on low skilled work is always second best pareto ineffcient a pareto improving policy consists of reducing the pre tax minimum wage while keeping constant the post tax minimum wage by increasing transfers to low skilled workers and financing this reform by increasing taxes on higher paid workers overall our results imply that the minimum wage and subsidies for low skilled workers are complementary policies pa

the health and earnings of rejected disability insurance applicants applicants for social security disability benefits who fail to pass the medical screening form a natural control group for beneficiaries data drawn from the 1972 and 1978 surveys of the disabled done for the social security administration show that fewer than 50 percent of rejected male applicants work typical earnings of those that do are less than 59 percent of median earnings for other men their age these data cast doubt on recent econometric work that suggests that the disincentive effects of the social security disability program have been substantial copyright 1989 by american economic association

welfare reform in european countries a microsimulation analysis this article compares the effects of increasing traditional welfare to introducing in work benefits in the 15 pre enlargement countries of the european union we use a labour supply model encompassing responses to taxes and transfers along both the intensive and extensive margins and the euromod microsimulation model to estimate current marginal and participation tax rates we quantify the equity efficiency trade off for a range of elasticity parameters in most countries because of large existing welfare programmes with high phase out rates increasing traditional welfare is undesirable unless the redistributive tastes of the government are extreme in contrast the in work benefit reform is desirable in a very wide set of cases

optimal unemployment insurance with human capital depreciation and duration dependence this paper studies the effect of human capital depreciation and duration dependence on the design of an optimal unemployment insurance ui scheme our results partially confirm those obtained in most previous studies benefits should decrease with unemployment duration the optimal program also generates two main novel features which are not present in stationary models first if human capital depreciates rapidly enough during unemployment ui transfers are bounded below by a minimal assistance level that arises endogenously in the efficient program second we study the optimality of imposing a history contingent wage tax after reemployment our numerical simulations based on the spanish and us economies show that the wage tax should decrease with the length of worker s previous unemployment spell and become a wage subsidy for long term unemployed workers as a by product of our study we develop a systematic approach suitable for studying recursively a wide range of dynamic moral hazard problems and other models with similar characteristics

union strategy and optimal direct taxation restrictions on work hours are more important in countries with a large welfare state we show that this empirical observation is consistent with the strategic effects of such restrictions in a welfare state in the context of optimal direct taxation in the tradition of mirrlees 1971 our results also apply to non welfarist states which have income redistribution but not in purely extortionary states

the optimal income taxation of couples this paper analyzes the general nonlinear optimal income tax for couples a multidimensional screening problem each couple consists of a primary earner who always participates in the labor market but makes an hours of work choice and a secondary earner who chooses whether or not to work if second earner participation is a signal of the couple being better worse off we prove that optimal tax schemes display a positive tax subsidy on secondary earnings and that the tax subsidy on secondary earnings decreases with primary earnings and converges to zero asymptotically we present calibrated microsimulations for the united kingdom showing that decreasing tax rates on secondary earnings is quantitatively significant and consistent with actual income tax and transfer programs

optimum income taxation and layoff taxes this paper analyzes optimum income taxation in a model with endogenous job destruction that gives rise to unemployment it is shown that optimal tax schemes comprise both payroll and layoff taxes when the state provides public unemployment insurance and aims at redistributing income the optimal layoff tax is equal to the social cost of job destruction which amounts to the sum of unemployment benefits that the state pays to unemployed workers and payroll taxes that the state does not get when workers are unemployed

oil price shocks and china s economy reactions of the monetary policy to oil price shocks abstract the paper empirically analyzes the effect of positive oil price shocks on china s economy having special interest in the response of the chinese interest rate to those shocks using different econometric models i a time varying parameter structural vector autoregression tvp svar model with short run identifying restrictions ii a structural var svar model with the short run identifying restrictions and iii a var model with ordering free generalized impulse response var gir var we find that the response of the chinese interest rate to the oil price shocks is not only time varying but also showing quite different signs of responses specifically in the earlier sample period 1992 4 2001 10 the interest rate shows a negative response to the oil price shock while in the latter period 2001 11 2014 5 it shows a positive response to the shock given the negative response of the world oil production to an oil price shock in the earlier period the shock is identified as a negative supply shock or a precautionary demand shock as suggested by kilian 2009 thereby the negative response of the interest rate to the oil price shock is deemed as economy boosting the positive response of the interest rate to the oil price shock in the later period given that this shock is identified as a positive world oil demand shock gives evidence that stabilization of inflation is one of the main objectives of china s monetary authority even though the current main objective of the monetary policy is characterized as maintaining the stability of the value of the currency and thereby promoting economic growth finally the variance decomposition results reveal that the oil price shock becomes an increasingly important source in the volatility of china s interest rate

differential taxation and occupational choice we develop a framework to study optimal sector specific taxation where each agent chooses an occupation by comparing her skill differential with the tax burden differential across sectors because skills are not perfectly transferable the diamond mirrlees theorem according to which the second best entails production efficiency fails social welfare can be increased by inducing some agents to join the sector in which their productivity is not the highest at the optimum income taxes balance the marginal losses from inter sector migration with the marginal gains from tailoring tax schedules to the distribution of productivities in each sector tagging a calibrated model indicates that sector specific taxation generates substantive welfare gains when skill transferability decreases with income as it enables the government to increase average taxes on high earners with large wage premia

optimal income tax under the threat of migration by top income earners we examine how allowing individuals to emigrate to pay lower taxes changes the optimal nonlinear income tax scheme in a mirrleesian economy an individual emigrates if his domestic utility is less than his utility abroad net of migration costs utilities and costs both depending on productivity a simple formula that complements saez s formula obtained in closed economy is derived for the marginal tax rates faced by top income earners it depends on the labour elasticity the tax rate abroad and the migration costs expressed as a fraction of the utility obtained abroad the rawlsian marginal tax rates obtained for the whole population illustrate a curse of the middle skilled simulations are provided for the french economy

optimal income transfer programs intensive versus extensive labor supply responses this paper analyzes optimal income transfers for low incomes labor supply responses are modeled along the intensive margin intensity of work on the job and along the extensive margin participation into the labor force when behavioral responses are concentrated along the intensive margin the optimal transfer program is a classical negative income tax program with a substantial guaranteed income support and a large phasing out tax rate however when behavioral responses are concentrated along the extensive margin the optimal transfer program is similar to the earned income tax credit with negative marginal tax rates at low income levels and a small guaranteed income carefully calibrated numerical simulations are provided

optimal redistributive taxation in a search equilibrium model this paper characterizes optimal non linear income taxation in an economy with a continuum of unobservable productivity levels and endogenous involuntary unemployment due to frictions in the labour markets redistributive taxation distorts labour demand and wages compared to their efficient values gross wages unemployment and participation are lower average tax rates are increasing marginal tax rates are positive even at the top finally numerical simulations suggest that redistribution is much more important in our setting than in a comparable mirrlees type setting

optimal tax treatment of private contributions for public goods with and without warm glow preferences abstract tax favored contributions for financing some public goods may be a useful part of optimal nonlinear income tax and expenditure policy there are two sides to the potential gain from subsidized donations first for a given level of public good provision higher private donations from high earners than low earners eases the incentive compatibility constraint for donors and so can raise social welfare this follows since considering a lower paid job includes a perception of a drop in public good provision second private donation reduces consumption easing the resource constraint this paper explores optimal policy using first a model with standard preferences and then a model with a warm glow of giving in addition to showing the conditions for the level of public goods the paper considers the pattern of optimal subsidization across earnings levels analysis of optimal taxation with warm glow preferences is sensitive to the choice of preferences that are relevant for a social welfare evaluation after considering optimal rules with formulations of social welfare which do and do not include warm glow utility the paper considers the choice of normative criterion like the earlier literature this paper assumes that organizing private donations is costless while tax collection has a deadweight burden since private charitable fundraising is very far from costless the paper is an exploration of economic mechanisms not a direct guide to policy

taxation and the allocation of talent taxation affects the allocation of talented individuals across professions by blunting material incentives and thus magnifying nonpecuniary incentives of pursuing a calling estimates from the literature suggest that high paying professions have negative externalities whereas low paying professions have positive externalities a calibrated model therefore prescribes negative marginal tax rates on middle class incomes and positive rates on the rich the welfare gains from implementing such a policy are small and are dwarfed by the gains from profession specific taxes and subsidies these results depend crucially on externality estimates and labor substitution patterns across professions both of which are very uncertain given existing empirical evidence

optimal income taxation of lone mothers an empirical comparison of the uk and germany optimal tax rules are used to evaluate the optimality of taxation for lone mothers in germany and britain the theoretical model is combined with elasticities derived from the structural estimation of lone mothers labour supply for both countries we do not find that in work credits with marginal tax rates are optimal however we show that when the government has a low taste for redistribution out of work transfers and transfer for the working poor are very similar implying very low marginal tax rates further the current tax and transfer systems in both countries are shown to be optimal only if governments have a much higher welfare value for income received by the non workers than the working poor government run transfer and redistribution programmes are of major importance in most developed countries such countries spend large amounts of public funds to provide income support to the poor although the precise structure of these pro grammes differs substantially as expenditures on public income support programmes count for a sizeable share of the government s budget in welfare states and because of their alleged negative work incentive effects there is an ongoing public debate about policy reforms in this area this controversy can be best described by the trade off between equity and efficiency income transfers increase the disposable income of the disadvantaged and thus their well being but the programmes introduce distortions that might lead to substantial disincentives in the labour market the aim of this article is to apply recent results from the optimal tax literature to analyse the design of personal income tax and welfare benefits empirically and to discuss its optimality we focus on the tax and transfer systems for lone mothers in germany and the uk

optimal income taxation and job choice in this paper we study optimal income taxation when different job types exist for workers of different skills each job type has some feasible range of incomes from which workers choose by varying labor supply workers are more productive than others in the jobs that suit them best the model combines features of the classic optimal tax literature with labor variability along the intensive margin with the extensive margin approach where workers make discrete job choices and or participation decisions we find that first best maximin utility can be achieved in the second best and marginal tax rates below the top can be negative or zero

the integration of child tax credits and welfare evidence from the national child benefit program abstract in 1998 the canadian government introduced a new child tax credit the innovation in the program was its integration with social assistance welfare some provinces agreed to subtract the new federally paid benefits from provincially paid social assistance partially lowering the welfare wall other provinces did not integrate benefits providing a quasi experimental framework for estimation we find large changes in social assistance take up and employment in provinces that provided the labour market incentives to do so in our sample the integration of benefits can account for between 19 and 27 of the decline in social assistance receipt between 1997 and 2000

negative marginal tax rates and heterogeneity the bulk of the theory of optimal taxation recommends that the marginal tax rate be everywhere positive labor supply is distorted downwards compared with laissez faire the conditions under which the result holds continuous labor supply or intensive margin unobserved productivity constant opportunity cost of work utilitarian planner with a redistributive motive towards lower incomes have been thoroughly investigated jesus seade 1977 1982 ivan werning 2000 martin f hellwig 2007 the purpose of the present paper is to describe how negative marginal tax rates can be optimal keeping with the intensive set up largely studied in the literature when there are multiple dimensions of heterogeneity indeed james a mirrlees 1976 in its section iv indicates along a line that will be pursued further here that the sign of the marginal tax rate cannot be predicted when the agents in the economy differ along several dimensions of heterogeneity workers differ in both their productivities and opportunity costs of work under utilitarianism heterogeneity comes into play through its impact on cardinal utilities how social weights or marginal utilities of income vary with income determines the shape of the optimal tax scheme conditionally on income utility and more importantly its derivative with respect to income may either decrease or increase with work opportunity costs this may vary according to circumstances depending on whether the cost is associated with poor living conditions i e a handicap or reflects a taste for leisure or opportunities outside the labor market such as gardening at home or black market activities for a given income the social weight is proportional to the expected marginal utilities where the expectation is taken over the distribution of work opportunity costs at this income level therefore the social weight curve depends on both the specification of the cardinal utility function and on how the distribution of work opportunity costs changes with income the fact that heterogeneity can blur the redistribution motive through the possible correlation between ability and onerousness of work has been discussed in models where agents have a finite number of types a pioneer work is that of joseph e stiglitz 1982 who shows that the high skilled individual should face a negative marginal tax rate if the low skilled individual s upward incentive constraint binds which is the case if social weights are increasing in type the importance of this observation for policy was pointed out in katherine cuff 2000 who is the first to explicitly link social weights to the opportunity cost of work using alternative choices of cardinal utilities in a model with four types combining two values for productivity and two values for the cost of work robin boadway et al 2002 showed how it can be optimal to have binding upward incentive constraints when high opportunity costs are associated with small social weights

sympathy for the diligent and the demand for workfare abstract we study the role of fairness concerns in the demand for redistribution through workfare in the first part of the paper we present new evidence from a survey we show that individuals are more generous towards poor people whom they perceive to be diligent workers relative to poor people whom they perceive to be non diligent a social preference that we label sympathy for the diligent this preference is much stronger than preferences regarding other characteristics of the poor such as race nationality and disability more important we show that subjects with higher sympathy for the diligent have a stronger preference for workfare programs in the second part of the paper we incorporate our empirical findings into a model of income redistribution we consider the case of a benevolent government with fairness concerns that prioritizes the well being of individuals who exert the most effort we characterize the optimal conditions under which the government introduces work requirements even if wasteful work requirements can be optimal because they allow for a better distinction between individuals who exert great effort and individuals who do not however if the government lacks commitment power the availability of screening through work requirements leads to a lower equilibrium effort and possibly a pareto dominated allocation

the case for a progressive tax from basic research to policy recommendations the fair distribution of the tax burden has long been a central issue in policyhe fair distribution of the tax burden has long been a central issue in policymaking a large academic literature has developed models of optimal tax making a large academic literature has developed models of optimal tax theory to cast light on the problem of optimal tax progressivity in this theory to cast light on the problem of optimal tax progressivity in this paper we explore the path from basic research results in optimal tax theory to paper we explore the path from basic research results in optimal tax theory to formulating policy recommendations formulating policy recommendations models in optimal tax theory typically posit that the tax system should maximize a models in optimal tax theory typically posit that the tax system should maximize a social welfare function subject to a government budget constraint taking into account social welfare function subject to a government budget constraint taking into account that individuals respond to taxes and transfers social welfare is larger when resources that individuals respond to taxes and transfers social welfare is larger when resources are more equally distributed but redistributive taxes and transfers can negatively are more equally distributed but redistributive taxes and transfers can negatively affect incentives to work save and earn income in the fi rst place this creates the clasaffect incentives to work save and earn income in the fi rst place this creates the classical trade off between equity and effi ciency which is at the core of the optimal income sical trade off between equity and effi ciency which is at the core of the optimal income tax problem in general optimal tax analyses maximize social welfare as a function of tax problem in general optimal tax analyses maximize social welfare as a function of individual utilities the sum of utilities in the utilitarian case the marginal weight for individual utilities the sum of utilities in the utilitarian case the marginal weight for a given person in the social welfare function measures the value of an additional dollar a given person in the social welfare function measures the value of an additional dollar of consumption expressed in terms of public funds such welfare weights depend on of consumption expressed in terms of public funds such welfare weights depend on the level of redistribution and are decreasing with income whenever society values the level of redistribution and are decreasing with income whenever society values more equality of income therefore optimal income tax theory is fi rst a normative more equality of income therefore optimal income tax theory is fi rst a normative theory that shows how a social welfare objective combines with constraints arising from theory that shows how a social welfare objective combines with constraints arising from limits on resources and behavioral responses to taxation in order to derive specifi c limits on resources and behavioral responses to taxation in order to derive specifi c

the design of income maintenance programmes this paper provides a comprehensive treatment of a basic income maintenance problem for a group of individuals who differ in their income generating abilities it stresses the impact that imperfect information about such abilities has on programme design the analysis serves two purposes first we are able to unify the theoretical literature on the income maintenance problem second we examine the impact of allowing the government to impose workfare on recipients of income support in addition to being of policy interest this is a theoretically challenging problem since it requires solving a multi dimensional screening problem the solution that we find is strikingly simple it separates the poor into two categories with the lower income groups subject to workfare while facing a 100 marginal tax rate on earnings the second group does no public work and is offered a benefit schedule which taxes earnings at a lower rate

viewpoint empirical evidence and tax policy design lessons from the mirrlees review this paper examines the role of evidence in drawing up the recommendations for tax reform in the mirrlees review the arguments are organised loosely under five related headings i key margins of adjustment ii measurement of effective tax rates iii the importance of information and complexity iv evidence on the size of responses v implications from theory for tax design although the mirrlees review focuses on all aspects of tax reform the focus is this paper is on the taxation of earnings with some examples drawn from the taxation of consumption and savings ce memoire examine le role des resultats dans la confection des recommandations pour la reforme fiscale dans l enquete mirrlees les arguments sont regroupes sous cinq rubriques i les importantes marges d ajustement ii la mesure des taux d imposition effective iii l importance de l information et de la complexite iv constat sur la taille des reponses et v les implications pour la theorie du design des politiques d imposition meme si l enquete mirrlees a examine tous les aspects de la reforme fiscale ce texte met l accent sur l impot sur les remunerations avec quelques exemples portant sur l impot sur la consommation et l epargne

optimal participation taxes addressing extensive labour supply responses the literature has established a case for larger transfers to the working poor than to even poorer non working people this paper casts new light on this result i argue that the result hinges crucially on the labour supply responses of people in income brackets above that of the working poor then distinguishing between more and less poor working people i show that if a single working type faces a negative tax it is the poorer one who does finally i endogenize wages and show that key conditions will be of the same form as before

female labour supply human capital and welfare reform we estimate a dynamic model of employment human capital accumulation including education and savings for women in the united kingdom exploiting tax and benefit reforms and use it to analyze the effects of welfare policy we find substantial elasticities for labor supply and particularly for lone mothers returns to experience which are important in determining the longer term effects of policy increase with education but experience mainly accumulates when in full time employment tax credits are welfare improving in the u k increase lone mother labor supply and marginally reduce educational attainment but the employment effects do not extend beyond the period of eligibility marginal increases in tax credits improve welfare more than equally costly increases in income support or tax cuts

identifying laffer bounds a sufficient statistics approach with an application to germany we derive a simple sufficient statistics test for whether a nonlinear tax transfer system is second best pareto efficient if it is not then it is beyond the top of the laffer curve and there exists a tax cut that is self financing the test depends on the income distribution extensive and intensive labor supply elasticities and income effect parameters a tax transfer system is likely to be inefficient if marginal tax rates are quickly falling in income we apply this test to the german tax transfer system and we find that the structure of effective marginal tax rates is likely to be inefficient in the region where transfers are phased out

human capital polarisation and pareto improving activating welfare human capital not only earns income but also is a source of direct felicity the interaction between these two motives for effort can generate multiple stationary solutions for individual household optimisation this multiplicity freezes any sufficiently unequal initial skill distribution and persistently segregates households into two separate groups one rich and educated one poor and uneducated if public goods are to be financed polarisation is typically pareto inefficient while unconditional transfers only reduce the incentive to accumulate skills activating tax transfer systems that pareto dominate any non redistributing system exist transfers are transitory and a negative marginal income tax is imposed on poor households income

a leaky bucket in the real world estimating inequality aversion using survey data existing evidence of inequality aversion relies on data from class room experiments where subjects face hypothetical questions this paper estimates the magnitude of inequality aversion using representative survey data with questions related to the real economy situations the respondents face the results reveal that inequality aversion can be measured in a meaningful way using survey data but the magnitudes of the estimates depend dramatically on how inequality aversion is measured no matter how measured the revealed inequality aversion predicts opinions on a wide range of questions related to the welfare state such as the level of taxation tax progressivity and the structure of unemployment benefits

the effect of age targeted tax credits on labor force participation of older workers abstract i analyze the effect of income tax policy changes on labor force participation of older workers i exploit two age targeted policy initiatives to promote work at older ages simultaneously implemented in sweden in 2007 an earned income tax credit and a payroll tax credit for workers above age 65 using an age based discontinuity in eligibility criteria i conduct a difference in differences analysis with the reform as an instrument for the net of tax rate i find a participation elasticity with respect to the net of participation tax rate of about 0 22 in the year following the 65th birthday for individuals who were working four years earlier

income taxation in a frictional labor market a new model of wage dispersion is used to examine welfare aspects of income taxation the model retains the dynamics of wage posting models while exogenizing search effort therefore allowing more insight into policy issues the results highlight effects that standard analyses do not take into account the optimal income tax should depend on an incidence effect between workers and firms this incidence effect arises from firms trying to lower wages as much as possible an employment tax proves in certain cases to be the best method to encourage labor force participation

rationality nash equilibrium and backwards induction in perfect information games we say that a player is certain of an event a if she assigns probability 1 to a there is common certainty cc of a if the event a occurred each player is certain of a each player is certain that every other player is certain of a and so forth it is shown that in a generic perfect information game the set of outcomes that are consistent with common certainty of rationality ccr at the beginning of the game coincides with the set of outcomes that survive one deletion of weakly dominated strategies and then iterative deletion of strongly dominated strategies thus the backward induction outcome is not the only outcome that is consistent with ccr in particular cooperation in rosenthal s 1981 centipede game and fighting in selten s 1978 chainstore game are consistent with ccr at the beginning of the game next it is shown that if in addition to ccr there is cc that each player assigns a positive probability to the true strategies and beliefs of the other players and if there is cc of the support of the beliefs of each player then the outcome of the game is a nash equilibrium outcome