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Redistributive taxation in the Roy Model


Rothschild, Casey; Scheuer, Florian (2013). Redistributive taxation in the Roy Model. Quarterly Journal of Economics, 128(2):623-668.

Abstract

We consider optimal redistribution in a model where individuals can self-select into one of several possible sectors based on heterogeneity in a multidimensional skill vector. We first show that when the government does not observe the sectoral choice or underlying skills of its citizens, the constrained Pareto frontier can be implemented with a single nonlinear income tax. We then characterize this optimal tax schedule. If sectoral inputs are complements, a many-sector model with self-selection leads to optimal income taxes that are less progressive than the corresponding taxes in a standard single-sector model under natural conditions. However, they are more progressive than in canonical multisector economies with discrete types and without occupational choice or overlapping sectoral wage distributions.

Abstract

We consider optimal redistribution in a model where individuals can self-select into one of several possible sectors based on heterogeneity in a multidimensional skill vector. We first show that when the government does not observe the sectoral choice or underlying skills of its citizens, the constrained Pareto frontier can be implemented with a single nonlinear income tax. We then characterize this optimal tax schedule. If sectoral inputs are complements, a many-sector model with self-selection leads to optimal income taxes that are less progressive than the corresponding taxes in a standard single-sector model under natural conditions. However, they are more progressive than in canonical multisector economies with discrete types and without occupational choice or overlapping sectoral wage distributions.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Multi-dimensional screening; optimal taxation, occupational choice
Language:English
Date:February 2013
Deposited On:09 Aug 2017 13:07
Last Modified:10 Aug 2017 07:27
Publisher:Oxford University Press
ISSN:0033-5533
Additional Information:Auch als NBER Working Paper Nr. 18228 erschienen
Publisher DOI:https://doi.org/10.1093/qje/qjs076
Related URLs:http://www.nber.org/papers/w18228

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