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Income Taxation with Labor Responses
Author(s) -
EBERT UDO,
MOYES PATRICK
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.1467-9779.2007.00324.x
Subject(s) - economics , inequality , schedule , income tax , labour supply , microeconomics , labour economics , public economics , mathematics , mathematical analysis , management
When incomes are exogenously given, U. Jakobsson ( Journal of Public Economics s 5 (1976), 161–168) proved that a progressive tax structure always reduces inequality. We investigate the implications for effective progression of relaxing the assumption of exogenous incomes when individuals have the same preferences but different talents. We extend the standard result and conclude that it is generally impossible to disentangle the respective contributions to inequality reduction of the tax schedule and agents' preferences. For a linear tax schedule to result in less unequally distributed incomes it is sufficient that the elasticity of labor supply be nonincreasing in exogenous income and nondecreasing in productivities. The latter condition proves to be necessary and sufficient when the tax schedule is proportional.