Full Citation

Title: On the Optimal Design of Transfers and Income Tax Progressivity

Citation Type: Journal Article

Publication Year: 2023

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ISSN:

DOI: https://doi.org/10.1086/725034

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Abstract: We study the optimal design of means-tested transfers and progressive income taxes. In a simple analytical model, we show that adding a transfer to a log-linear tax induces welfare gains almost as large as in the second-best allocation. Transfers allow for more progressive average than marginal tax and transfer rates, achieving redistribution while preserving efficiency. In a rich dynamic model, we quantify the optimal fiscal plan. We use new flexible functions featuring targeted transfers and progressive income taxes, delivering a good empirical fit across the income distribution. Transfers should be larger than currently in the United States and financed with moderate income tax progressivity.

Url: https://www.journals.uchicago.edu/doi/epdf/10.1086/725034

User Submitted?: Yes

Authors: Ferriere, Axelle;; Grubener, Philipp;; Navarro, Gaston; Vardishvili, Oliko

Periodical (Full): Journal of Political Economy: Macroeconomics

Issue: 2

Volume: 1

Pages: 276-333

Data Collections: IPUMS CPS

Topics: Labor Force and Occupational Structure, Poverty and Welfare, Work, Family, and Time

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