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The efficient side of progressive income taxation |
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| Authors: | Giacomo Corneo |
| Institution: | a Department of Economics, University of Osnabrück, Rolandstrasse 8, 49069 Osnabrück, Germany b Centre for Economic Policy Research, London, UK c CESifo, Munich, Germany d IZA, Bonn, Germany |
| Abstract: | This paper examines allocative properties of progressive income taxation when individuals care about their relative income. It shows that introducing a progressive income tax can yield a Pareto improvement if pre-tax income is evenly distributed. Implementing undistorted choices of working hours requires a progressive tax schedule, and the optimal degree of progressivity decreases with pre-tax income inequality. |
| Keywords: | H2 J2 |
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