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Title: Fair and efficient taxation under partial control: Theory and evidence
Citation Type: Working Paper
Publication Year: 2010
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Abstract: There is clear evidence that fairness plays a role in redistribution. Individuals want to compensateothers for their misfortune, while they allow them to enjoy the fruits of their eort. Such fairnessconsiderations have been introduced in political economy and optimal income tax models with a focuson income acquisition. However, actual tax-bene?t systems are based on much more information. Weintroduce fairness in a tax-bene?t scheme that is based on several characteristics. The novelty is theintroduction of partial control. Each characteristic diers in terms of the degree of control, i.e., theextent to which it can be changed by exerting eort. Two testable predictions result. First, the tax rateon partially controllable characteristics should be lower compared to the tax rate on non-controllabletags. Second, the total eect of non-controllable characteristics on the post-tax outcome should beequal to zero. We estimate implicit tax rates for dierent characteristics in 26 European countries(using EU-SILC data) and the US (using CPS data). We ?nd a robust tendency in all countries tocompensate more for the uncontrollable composite characteristic (based on sex, age and disabilityin our study) compared to the partially controllable one (based on family composition, immigrationstatus, unemployment and education level). We also estimate the degree of fairness of tax-bene?tschemes in dierent countries. Only the Continental countries France and Luxembourg pass the fairness test, whereas the Baltic and Anglo-Saxon countries (including the US) perform worst.
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Authors: Peichl, Andreas; Ooghe, Erwin
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Publication Number: 10.32
Institution: Katholieke Universiteit Leuven
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Data Collections: IPUMS CPS
Topics: Other
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