Optimal Redistributive Taxation with both Extensive and Intensive Responses

We study optimal income taxation when labor supply reacts along the intensive and extensive margins. Individuals are heterogeneous across two unobserved dimensions: their skill and disutility of participation. We develop a new method to analytically derive conditions under which optimal marginal tax rates are non-negative everywhere. It is typically optimal to provide a distinct level of transfer to the non-employed and to workers with negligible earnings. Numerical simulations illustrate these properties for the US. We also apply our method to sign output distortions in other adverse selection frameworks with random participation, namely the monopoly nonlinear pricing and the regulatory monopoly problems.

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Document type	Article de périodique (Journal article) – Article de recherche
Access type	Accès restreint
Publication date	2013
Language	Anglais
Journal information	"Journal of Economic Theory" - Vol. 148, no. 5, p. 1770-1805 (2013)
Peer reviewed	yes
Publisher	Academic Press ((United States) Maryland Heights)
issn	0022-0531
e-issn	1095-7235
Publication status	Publié
Affiliations	UCL - SSH/LIDAM/IRES - Institut de recherches économiques et sociales Université de Cergy-Pontoise - THEMA Université Panthéon-Assas Paris 2 - CRED
Keywords	Optimal taxation ; Intensive margin ; Extensive margin ; Marginal tax rates ; Random participation
Links	http://hdl.handle.net/2078.1/134549[Handle] https://doi.org/10.1016/j.jet.2013.07.019[DOI]

See also
	[boreal:33514]	Optimal Redistributive Taxation with both Extensive and Intensive Responses