Optimal Redistributive Policies by Publicly Provided Inputs and Income Taxation

46 Pages Posted: 19 Jan 2021

See all articles by Thomas Bassetti

Thomas Bassetti

University of Padova - Department of Economics

Luciano G. Greco

affiliation not provided to SSRN

Date Written: May 12, 2020

Abstract

Governments redistribute by means of taxes, transfers, and public services. Relying on three sufficient statistics, we characterize the conditions under which nonlinear income taxation is optimally combined with input public provision in two-class and multi-class economies, where individual wages are driven by households’ exogenous capabilities and input investments. A universal scheme, such that all households opt for a large and uniform level of publicly provided input, optimally compound with nonlinear income taxation, if higher-capability households demand less (publicly provided) input than the lower-capability do. Otherwise, pure nonlinear taxation is optimal. Calibrating our model with U.S. data, we find that the former case is empirically relevant.

Suggested Citation

Bassetti, Thomas and Greco, Luciano G., Optimal Redistributive Policies by Publicly Provided Inputs and Income Taxation (May 12, 2020). Available at SSRN: https://ssrn.com/abstract=3728018 or http://dx.doi.org/10.2139/ssrn.3728018

Thomas Bassetti (Contact Author)

University of Padova - Department of Economics ( email )

via Del Santo 33
Padova, 35123
Italy

Luciano G. Greco

affiliation not provided to SSRN ( email )

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