Optimal Taxation Under Different Concepts of Justness

35 Pages Posted: 11 May 2018

See all articles by Robin Jessen

Robin Jessen

Free University of Berlin (FUB)

Maria Metzing

German Institute for Economic Research (DIW Berlin)

Davud Rostam‐Afschar

University of Mannheim - Accounting and Taxation

Date Written: October 18, 2017

Abstract

A common assumption in the optimal taxation literature is that the social planner maximizes a welfarist social welfare function with weights decreasing with income. However, high transfer withdrawal rates in many countries imply very low weights for the working poor in practice. We reconcile this puzzle by generalizing the optimal taxation framework by Saez (2002) to allow for alternatives to welfarism. We calculate weights of a social planner’s function as implied by the German tax and transfer system based on the concepts of welfarism, minimum absolute and relative sacrifice, as well as subjective justness. For the latter, we use a novel question from the German Socio-Economic Panel. We find that the minimum absolute sacrifice principle is in line with social weights that decline with net income. Absolute subjective justness is roughly in line with decreasing social weights, which is reflected by preferences of men, West Germans, and supporters of the grand coalition parties.

Keywords: Justness, Optimal Taxation, Income Redistribution, Equal Sacrifice, Inequality, Subjective Preferences

JEL Classification: D63, D60, H21, H23, I38

Suggested Citation

Jessen, Robin and Metzing, Maria and Rostam-Afschar, Davud, Optimal Taxation Under Different Concepts of Justness (October 18, 2017). SOEPpaper No. 953, Available at SSRN: https://ssrn.com/abstract=3169875 or http://dx.doi.org/10.2139/ssrn.3169875

Robin Jessen (Contact Author)

Free University of Berlin (FUB) ( email )

Van't-Hoff-Str. 8
Berlin, Berlin 14195
Germany

Maria Metzing

German Institute for Economic Research (DIW Berlin)

Mohrenstraße 58
Berlin, 10117
Germany

Davud Rostam-Afschar

University of Mannheim - Accounting and Taxation

Mannheim, 68131
Germany

HOME PAGE: http://rostam-afschar.de/

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