Taxes and Employment Subsidies in Optimal Redistribution Programs

This paper explores how to optimally set tax and transfers when taxation authorities: (1) are uninformed about individuals’ value of time in both market and non-market activities and (2) can observe both market-income and time allocated to market employment. In contrast to much of the optimal income taxation literature, we show that optimal redistribution in this environment involves distorting market employment upwards for low net-income individuals through phased-out wage-contingent employment subsidies, and distorting employment downward for high net-income individuals through positive and increasing marginal income tax rate. We also show that workfare may also be used as part of an optimal redistribution program.


Issue Date:
Feb 02 2004
Publication Type:
Working or Discussion Paper
Record Identifier:
http://ageconsearch.umn.edu/record/269736
Language:
English
Total Pages:
61
JEL Codes:
D82; H21; H23




 Record created 2018-03-21, last modified 2018-03-21

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