Income Taxation and Optimal Government Policy
Harvard Law School; National Bureau of Economic Research (NBER)
The New Palgrave Dictionary of Economics and the Law, 2nd Edition
Harvard Law and Economics Discussion Paper No. 518
Various economic literatures address the question whether first-best prescriptions for government policy require modification because redistributive income taxation distorts labor supply and cannot achieve the distributive ideal. Perhaps second-best rules for public goods provision, corrective taxation, public sector pricing, and other government activity should reflect concerns about distribution and labor supply distortion. Recent work demonstrates, however, that in basic cases first-best principles remain applicable. Demonstrations make use of income tax adjustments that preserve not only budget balance but also the pre-reform distribution of utility.
Number of Pages in PDF File: 12
JEL Classification: D61, D62, D63, H21, H23, H24, H41, H43, L51, Q52Accepted Paper Series
Date posted: October 12, 2005
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