We provide a full characterization of a two-type optimal nonlinear income tax model where the single-crossing condition is violated due to an assumption that agents differ both in terms of market abilities and in terms of their needs for a work-related good. We set up a Pareto-efficient tax problem and analyze the entire second-best Pareto-frontier, highlighting several non-standard results, such as the possibility of income re-ranking relative to the laissez-faire and gaps in the Pareto-frontier.
Pareto efficient income taxation without single-crossing / S. Bastani, S. Blomquist, L. Micheletto. - In: SOCIAL CHOICE AND WELFARE. - ISSN 0176-1714. - (2020 May). [Epub ahead of print] [10.1007/s00355-020-01257-z]
Pareto efficient income taxation without single-crossing
L. Micheletto
2020
Abstract
We provide a full characterization of a two-type optimal nonlinear income tax model where the single-crossing condition is violated due to an assumption that agents differ both in terms of market abilities and in terms of their needs for a work-related good. We set up a Pareto-efficient tax problem and analyze the entire second-best Pareto-frontier, highlighting several non-standard results, such as the possibility of income re-ranking relative to the laissez-faire and gaps in the Pareto-frontier.
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Bastani2020_Article_ParetoEfficientIncomeTaxationW.pdf
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