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When Redistribution Leads to Regressive Taxation
Author(s) -
HARITON CYRIL,
PIASER GWENAËL
Publication year - 2007
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2007.00321.x
Subject(s) - redistribution (election) , economics , imperfect , incentive , microeconomics , perfect information , market power , function (biology) , evolutionary biology , biology , monopoly , philosophy , linguistics , politics , political science , law
We introduce labor contracts in a framework of optimal redistribution: firms have some local market power and try to discriminate among heterogeneous workers. In this setting we show that if the firms have perfect information, i.e., they perfectly discriminate against workers and take all the surplus, the best tax function is flat. If firms have imperfect information, i.e., if they offer incentive contracts, then (under some assumptions) the best redistributive taxation is regressive.