Optimal Participation Taxes and Efficient Transfer Phase-Out

Lorenz, Normann; Sachs, Dominik

Optimal Participation Taxes and Efficient Transfer Phase-Out

Dateien

Lorenz_0-274674.pdfGröße: 532.88 KBDownloads: 298

Datum

2012

Publikationstyp

Working Paper/Technical Report

Publikationsstatus

Published

Zusammenfassung

We analyze the optimal design of income transfer programs with a special focus on participation taxes and the marginal tax rates in the phase-out region. The analytical framework incorporates labor supply responses along the intensive and extensive margin, where the latter is due to a minimum hours constraint. All results are expressed in reduced form, i.e. in terms of intensive and extensive labor supply elasticities. We derive a formula for the optimal participation taxes and provide a condition under which negative participation taxes are never part of the optimal tax schedule. Concerning the marginal tax rates in the phase-out region, we develop a test for a tax-transfer system to be beyond the top of the Laffer curve and thus to be (second-best) Pareto inefficient. In such a case there would be room for tax cuts (or increases in transfers) which are self-financing and therefore constitute a Pareto improvement. Applying this test to Germany, our analysis suggests that the structure of marginal tax rates in the transfer phase-out region is (second-best) Pareto inefficient.

Fachgebiet (DDC)

330 Wirtschaft

Schlagwörter

Optimal taxation, participation taxes, extensive margin, Laffer curve, multidimensional screening

Zitieren

ISO 690

LORENZ, Normann, Dominik SACHS, 2012. Optimal Participation Taxes and Efficient Transfer Phase-Out

BibTex

@techreport{Lorenz2012Optim-29681,
  year={2012},
  series={Working Paper Series / Department of Economics},
  title={Optimal Participation Taxes and Efficient Transfer Phase-Out},
  number={2012‐37},
  author={Lorenz, Normann and Sachs, Dominik}
}

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