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Well-Being, Poverty, and Labor Income Taxation: Theory and Application to Europe and the United States†

Well-Being, Poverty, and Labor Income Taxation: Theory and Application to Europe and the United... AbstractIn a model where agents differ in wages and preferences over labor time–consumption bundles, we study labor income tax schemes that alleviate poverty. To avoid conflict with individual well-being, we require redistribution to take place between agents on both sides of the poverty line provided they have the same labor time. This requirement is combined with efficiency and robustness properties. Maximizing the resulting social preferences under incentive compatibility constraints yields the following evaluation criterion: tax schemes should minimize the labor time required to reach the poverty line. We apply this criterion to European countries and the United States. (JEL H23, H24, I31, I32, J22) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Well-Being, Poverty, and Labor Income Taxation: Theory and Application to Europe and the United States†

Well-Being, Poverty, and Labor Income Taxation: Theory and Application to Europe and the United States†

American Economic Journal: Microeconomics , Volume 13 (2) – May 1, 2021

Abstract

AbstractIn a model where agents differ in wages and preferences over labor time–consumption bundles, we study labor income tax schemes that alleviate poverty. To avoid conflict with individual well-being, we require redistribution to take place between agents on both sides of the poverty line provided they have the same labor time. This requirement is combined with efficiency and robustness properties. Maximizing the resulting social preferences under incentive compatibility constraints yields the following evaluation criterion: tax schemes should minimize the labor time required to reach the poverty line. We apply this criterion to European countries and the United States. (JEL H23, H24, I31, I32, J22)

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Publisher
American Economic Association
Copyright
Copyright © 2021 © American Economic Association
ISSN
1945-7685
DOI
10.1257/mic.20180269
Publisher site
See Article on Publisher Site

Abstract

AbstractIn a model where agents differ in wages and preferences over labor time–consumption bundles, we study labor income tax schemes that alleviate poverty. To avoid conflict with individual well-being, we require redistribution to take place between agents on both sides of the poverty line provided they have the same labor time. This requirement is combined with efficiency and robustness properties. Maximizing the resulting social preferences under incentive compatibility constraints yields the following evaluation criterion: tax schemes should minimize the labor time required to reach the poverty line. We apply this criterion to European countries and the United States. (JEL H23, H24, I31, I32, J22)

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: May 1, 2021

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