Poverty alleviation and tax policy |
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Authors: | Jukka Pirttilä Matti Tuomala |
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Institution: | a Institute for Economies in Transition (BOFIT), Bank of Finland, P.O. Box 160 (Kluuvikatu 7), 00101 Helsinki, Finland b University of Tampere, Tampere, Finland |
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Abstract: | This paper examines public good provision and tax policy—optimal non-linear income taxation and linear commodity taxation—when the government departs from purely welfarist objective function and seeks to minimise poverty. This assumption reflects much policy discussion and may help understand some divergences of practical tax policy from lessons in optimal tax analysis. In contrast to Atkinson and Stiglitz (J. Public Econom. 6 (1976) 55), it may be optimal to use differentiated commodity tax rates, including the taxation of savings, even if preferences are separable in goods and leisure. The optimal effective marginal tax rate at the bottom of the distribution may be negative, suggesting that wage subsidy schemes can be optimal. Finally, optimal provision of a public good is analysed under poverty minimisation. |
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Keywords: | H21 H41 I32 |
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