Redistribution When Avoidance Behavior is Heterogeneous

Posted: 17 Dec 2002

See all articles by Wojciech Kopczuk

Wojciech Kopczuk

Columbia University - Graduate School of Arts and Sciences - Department of Economics; Columbia University - School of International & Public Affairs (SIPA); National Bureau of Economic Research (NBER)

Abstract

The optimal income taxation framework is extended to account for heterogeneity in avoidance behavior. The optimal tax formula are shown to be simply and intuitively modified to reflect the value of taxable income as an indicator of the need for transfers at a given skill level. This effect is in addition to any effect implied by just considering additional margins of response to taxes. Alternative sources of heterogeneity and their likely consequences are discussed. When the choice of administration is added to the model, it is demonstrated that the optimal tax system may include some seemingly wasteful avoidance schemes, even if they could be eliminated without any cost. When an avoidance scheme is more heavily used by the needy, it may provide additional redistribution without affecting standard incentive constraints.

Keywords: Optimal income taxation, Tax avoidance, Tax administration

JEL Classification: H21, H24, H26

Suggested Citation

Kopczuk, Wojciech, Redistribution When Avoidance Behavior is Heterogeneous. Available at SSRN: https://ssrn.com/abstract=345501

Wojciech Kopczuk (Contact Author)

Columbia University - Graduate School of Arts and Sciences - Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

Columbia University - School of International & Public Affairs (SIPA)

420 West 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
554
PlumX Metrics