Abstract

https://ssrn.com/abstract=2918716
 


 



As Easy as ABC? Multidimensional Screening in Public Finance


Sander Renes


Erasmus School of Economics; University of Mannheim - SFB 884 Political Economy of Reforms

Floris T. Zoutman


Norwegian School of Economics (NHH) - Department of Business and Management Science

January 3, 2017

CESifo Working Paper Series No. 6301

Abstract:     
We characterize the second-best allocation in a Mirrleesian optimal tax model where agents differ in multiple dimensions and the planner can tax multiple goods non-linearly. We develop a new method that allows us to solve the partial differential equations that describe the optimum regardless of the dimensionality of the problem. We derive four theoretical properties of the optimum. First, the optimal tax system is described by a multidimensional version of Diamond’s (1998) and Saez’ (2001) ABC-formula. Second, the Atkinson-Stiglitz theorem does not generalize to settings where the planner screens in multiple dimensions. Third, the optimal marginal tax rate on each good depends on the consumption level of multiple goods. Fourth, a no-distortion at the top/bottom result continues to hold. A calibrated simulation on taxation of couples shows a strong positive relationship between an individual’s optimal marginal tax rate and the income earned by his spouse.

Number of Pages in PDF File: 51

Keywords: Optimal Non-Linear Taxation, Redistribution, Tax System, Multi-Dimensional Screening

JEL Classification: C630, D820, H210, H240


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Date posted: February 16, 2017  

Suggested Citation

Renes, Sander and Zoutman, Floris T., As Easy as ABC? Multidimensional Screening in Public Finance (January 3, 2017). CESifo Working Paper Series No. 6301. Available at SSRN: https://ssrn.com/abstract=2918716

Contact Information

Sander Renes (Contact Author)
Erasmus School of Economics ( email )
Netherlands
University of Mannheim - SFB 884 Political Economy of Reforms ( email )
L13, 17
Mannheim, 68131
Germany
HOME PAGE: http://www.sanderrenes.com
Floris T. Zoutman
Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )
Helleveien 30
Bergen, NO-5045
Norway
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