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Optimal Tax‐Transfer Systems and Redistributive Policy
Author(s) -
Fellman Johan,
Jäntti Markus,
Lambert Peter J.
Publication year - 1999
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00144
Subject(s) - economics , optimal tax , inequality , public economics , judgement , tax policy , microeconomics , tax reform , macroeconomics , mathematics , mathematical analysis , political science , law
In this paper we develop “optimal yardsticks” to gauge the effectiveness of given tax and benefit policies in reducing inequality. We show that the conjunction of the optimal tax and optimal benefits policies constitutes the optimal tax‐and‐benefit policy, given the tax and benefit budget sizes. A decomposition formula enables trends in the inequality impact of taxes and benefits to be explained in terms of changing policy effectivess (targeting) and budget size effects. The analysis incorporates a distributional judgement parameter, for sensitivity analysis, and concludes with an examination of the Finnish case for the period 1971–1990. JEL Classification : D 63