Optimal redistributive taxation with both extensive and intensive responses

We study optimal income taxation when labor supply reacts along the intensive and extensive margins. Individuals are heterogeneous across two unobserved dimensions: their skill and disutility of participation. We develop a new method to analytically derive conditions under which optimal marginal tax rates are non-negative everywhere. It is typically optimal to provide a distinct level of transfer to the non-employed and to workers with negligible earnings. Numerical simulations illustrate these properties for the US. We also apply our method to sign output distortions in other adverse selection frameworks with random participation, namely the monopoly nonlinear pricing and the regulatory monopoly problems.     

Optimal marginal and average income taxation under maximin

Using the Mirrlees optimal income tax model under maximin, we derive fairly mild conditions for a decreasing marginal tax rate throughout the skill distribution with no bunching, a strictly concave tax function in income and a single-peaked average tax schedule. Assuming additive preferences and an isoelastic disutility of labor function, these tax profiles are implied by aggregate skills that are non-decreasing with the skill level. If preferences are quasilinear in leisure or in consumption, these tax profiles are also obtained under a large set of skill distributions.     

The changing economic status of U.S. disabled men: Trends and their determinants, 1982–1991

We track the level of economic well-being of the population of men who began receiving Social Security Disability Insurance benefits in 1980–81 from the time just after they became beneficiaries (in 1982) to 1991. We present measures of the economic well-being of disabled individuals and their nondisabled peers as indicators of the relative economic position of these two groups. These measures also provide an intertemporal comparison of well-being and hardship as disabled persons and their nondisabled peers age and retire. We first show several economic well-being indicators for new male recipients of disability benefits in 1982 and 1991. We then compare their economic position to that of a matched group of nondisabled males with sufficient work histories to have been disability-insured. Because labor market changes over this decade have led to a relative deterioration in the position of younger and less-educated workers, we compare men with disabilities to those without disabilities and distinguish different age and educational levels within the groups. We conclude by assessing the antipoverty effectiveness of Social Security income support for both younger and older male SSDI recipients. First version received: May 1998/final version received: July 1999     

Optimal Social Insurance with Endogenous Health*

In this paper, I analyze optimal insurance against unemployment and disability in a private information economy with endogenous health and search effort. Individuals can reduce the probability of becoming disabled by exerting prevention effort. I show that the optimal sequence of consumption is increasing for a working individual and constant for a disabled individual. During unemployment, decreasing benefits are not necessarily optimal. The prevention constraint implies increasing benefits while the search constraint demands decreasing benefits while being unemployed. However, if individuals respond sufficiently to search incentives, the latter effect dominates the former and the optimal consumption sequence is decreasing during unemployment.     

Optimal Social Insurance with Linear Income Taxation*

We study optimal social insurance aimed at insuring disability risk in the presence of linear income taxation. Optimal disability insurance benefits rise with previous earnings. Optimal insurance is incomplete even though disability risks are exogenous and verifiable so that moral hazard in disability insurance is absent. Imperfect insurance is optimal because it encourages workers to insure themselves against disability by working and saving more, thereby alleviating the distortionary impact of the redistributive income tax on labor supply and savings.     

Disability insurance in an optimal pension scheme

Disability or poor health is traditionally associated with a complete loss of earnings capacity and/or prohibitive increases in the disutility of labor. Thus, it invokes a necessity to withdraw from the labor market. A number of empirical and theoretical studies have questioned this conventional view and suggested instead that the use of disability-contingent allowances for early retirement mainly reflects the leniency of the eligibility rules. This raises the issue of designing incentive-compatible health-contingent retirement rules and questions concerning the resulting characterization of optimal pension systems. The study shows that the presence of moral hazard induces an overinsurance of normal retirees, raises the optimal contribution-rate, and lowers the optimal normal benefit level and the normal retirement age. Moreover, even if the realization of an ex-ante uncertain health shock increases the disutility of labor only slightly, the disability-contingent retirement age and the date when this health shock occurs will coincide — given that the system entails normal retirement provisions as well. Thus, minimum eligibility ages and other arrangements to induce prolonged work of actually disabled persons can very generally be demonstrated to be suboptimal.     

Time zones,shift working and international outsourcing

We build a trade model with two identical countries located in different time zones and one sector with intermediate differentiated goods produced in two successive stages. We introduce shift working disutility that raises night wage and firms that “virtually” outsource foreign labor. We found that firms only outsource if outsourcing costs are relatively low and shift disutility is high. When outsourcing occurs, it generates the highest level of welfare among production modes. Intermediate values of shift working disutility generate the lowest level of welfare. Outsourcing and domestic labor are substitutes at the firm level and complements at the economy level.     

Workforce or workfare? The optimal use of work requirements when labour is supplied along the extensive margin

This paper explores the use of workfare as part of a tax mix when labour supply responses are along the extensive margin. In an economy where the government has a priori chosen any tax‐and‐benefit schedule, we show that, despite their common goal of providing additional incentives for individuals to enter the labour force, workfare and an earned income tax credit are at odds with each other. We also show that, in the presence of an optimal nonlinear income tax, introducing unproductive workfare is always suboptimal when individuals face the same disutility of being on workfare. When this disutility is heterogeneous, unproductive workfare may be a useful policy tool.     

Myopia, redistribution and pensions

This paper reviews a number of recent contributions that study pension design with myopic individuals. Its objective is to explore how the presence of more or less myopic individuals affects pension design when individuals differ also in productivity. This double heterogeneity gives rise to an interesting interplay between paternalistic and redistributive considerations, which is at the heart of most of the results that are presented. The main part of the paper is devoted to the issue of pension design when myopic individual do not save “enough” for their retirement because their “myopic self” (with a high discount rate) emerges when labor supply and savings decisions are made. Some extensions and variations are considered in the second part. In particular we deal with situations where labor disutility or preferences for consumption are subject to “habit formation” and where sin goods have a detrimental effect on second period health. Myopic individuals tend to underestimate the effects of both habit formation and sinful consumption, which complicates public policy.     

Social security, retirement age and optimal income taxation

It is often argued that implicit taxation on continued activity of elderly workers is responsible for the widely observed trend towards early retirement. In a world of laissez-faire or of first-best efficiency, there would be no such implicit taxation. The point of this paper is that, when first-best redistributive instruments are not available, because some variables are not observable, the optimal policy does imply a distortion of the retirement decision. Consequently, the inducement of early retirement may be part of the optimal tax-transfer policy. We consider a model in which individuals differ in their productivity and their capacity to work long and choose both their weekly labor supply and their age of retirement. We characterize the optimal non-linear tax-transfer that maximizes a utilitarian welfare function when weekly earnings and the length of active life are observable while individuals' productivity and health status are not observable.     

残疾人就业服务体系的构建:从分割到融合

将国际上促进残疾人就业的政策分为三种:法规管制型政策、平衡型政策和替代型政策。我国残疾人就业政策从集中就业转变到目前的以按比例就业为主,以多种就业方式为辅,实现了从分割到融合的过渡,但残疾人就业仍然存在较多问题,比如平衡型政策不够完善,职业康复和培训、支持性就业较为薄弱。建设残疾人就业服务体系应从全局和整体考虑,关注残疾人就业能力的提高和维持其就业动力,重点加强平衡型政策的实施。     

Is the Optimal Labor Income Tax Progressive in a Unionized Economy?*

This paper concerns optimal nonlinear labor income taxation in an economy with union wage setting and endogenous hours of work. The purpose is to study the determinants of tax progression. We show that the optimal degree of progression of the labor income tax depends on the extent to which the government can influence the wage rate via tax policy as well as on its ability to redistribute income across individuals. In addition, the argument for progressive labor income taxation depends on whether hours of work are chosen by the employed themselves or the union.     

Discrimination and Skill Differences in an Equilibrium Search Model*

We analyze an equilibrium search model with three sources for wage and unemployment differentials among workers with the same (observed) human capital but different appearance (race): unobserved productivity, search intensities, and discrimination due to an appearance‐based employer disutility factor. We show that the structural parameters are identified using labor market survey data. Estimation results for a black and white high school graduate sample imply: black productivity is 3.3% lower than white productivity; the employer's disutility factor is 31% of the white's productivity level; and 56% of firms have a disutility factor toward blacks.     

OPTIMAL IMMIGRATION POLICY: WHEN THE PUBLIC GOOD IS RIVAL*

In this model, we characterize optimal immigration and fiscal policies in the presence of a rival public good and heterogeneous discounting. Surprisingly, even if the government is benevolent towards natives only, it is optimal to keep borders open. Indeed, in the long run, patient natives hold the whole stock of capital, while impatient immigrants work. Moreover, since capital intensity is stationary, capital per native, consumption and the public good increase with the number of (immigrant) workers. This positive effect offsets the disutility deriving from the congestion of the public good. However, when we account for the costs associated with cultural heterogeneity, we find that it is optimal to regulate immigration inflows. We also analyze the long‐run sensitivity of the optimal policy mix with respect to the fundamentals.     

Union strategy and optimal direct taxation

Restrictions on working hours are more important in countries with a large welfare state. We show that this empirical observation is consistent with the strategic effects of such restrictions in a welfare state in the context of optimal direct taxation in the tradition of Mirrlees (1971) [Mirrlees, J.A., 1971. An exploration in the theory of optimum income taxation. Review of Economic Studies 38, 175–208]. Our results also apply to non-welfarist states that have income redistribution, but not in purely extortionary states.     

THE LOSS OF EARNINGS CAPABILITY FROM DISABILITY/HEALTH LIMITATIONS: TOWARD A NEW SOCIAL INDICATOR

Health problems and physical and mental impairments can restrict the kind and amount of work that individuals can perform. Several studies have estimated the loss in earnings experienced by disabled/health-limited workers, but they do not examine the trend in this loss over time. The authors propose an alternative indicator of productivity loss that is more appropriate for inter temporal comparisons: "lost earnings capability"–the difference between the amount of money persons could potentially earn if they were free of disability/health limitations and the amount of money that they can actually earn given their limitations. The estimates indicate that the mean lost earnings capability per disabled/health-limited person grew over the period from 1973 to 1988, while the population with disabilities/health limitations fell. In 1973, lost earnings capacity totaled about 5.3 percent of Gross National Product (GNP); by 1988, the loss had fallen to about 4.5 percent of GNP as a consequence of the reduction in the number of people with limitations. Data are from the Current Population Surveys and the Survey of Income and Program Participation.     

Inter‐Jurisdictional Competition for Firms*

Regions inhabited with an immobile population of disabled and able individuals compete to attract mobile firms that provide jobs. The redistributive goal of regional governments is to support the disabled, who cannot work. Able individuals may work, be involuntary unemployed because of frictions in the labor market, or choose to be voluntary unemployed. Labor force participation decisions depend on regional redistributive policies. Both the size of workforce and tax on firms affect profits and therefore, firms’ location decisions. Allowing regions to engage in tax competition may be efficient. If regions cannot tax firms, they compete by implementing inefficient redistributive policies.     

The impact of work-limiting disabilities on earnings and income mobility

This article uses the 1968–2007 waves of the Panel Study of Income Dynamics (PSID) to examine how work-limiting disabilities influence the intragenerational earnings and income mobility of individuals. The results show that work-limiting disabilities increase the probability of downward mobility for several years after onset. Furthermore, the probability of being in the bottom portions of the distributions increases significantly, not only during the year of onset but also for at least 10 years afterwards. These results are more pronounced for those individuals suffering from a disability that is more chronic or severe in nature. Income from spousal earnings and government transfer payments offers some protection against disability’s adverse effect, with more protection being provided to those who are more chronically disabled.     

Social Insurance with In-kind Provision of Private Goods

This paper addresses the desirability of providing in-kind transfers as a screening device to facilitate redistribution of income from able to disabled persons within a social insurance system. An optimal policy—consisting of cash transfers, income-contingent in-kind transfers of one good particularly demanded by disabled workers, and linear taxation of other commodities—is characterized. It is then asked whether and, if so, when this policy can be replaced by an "earning-tested scheme" that provides the in-kind good only to those indivi duals who have no earnings from labor or by a non-linear pricing policy.     

The impact of fiscal policies on agricultural household decisions

This paper provides a comparative static analysis of farm household's production, consumption, and labor market decisions under alternative tax policies. We explore the implications of non-separable household decisions caused by widespread non-participation in labor, land, financial and/or food markets, as is typical of low income economies. The analytical results indicate that when labor market imperfections occur, most tax-induced responses are ambiguous, mainly due to shadow price effects. This is particularly the case for the labor market and production responses to most tax tools under study, while a decreasing demand for consumption goods appears to be the result in several cases. Furthermore, tax-induced allocation effects may differ between the non-separable and the separable model versions, indicating the potential impact of labor market constraints on farm household responses to tax policies. In particular, standard taxes as well as a land tax may imply production adjustments in the case of non-separability.