Hellwig, Christian and Werquin, Nicolas (2022) A fair day's pay for a fair day's work: optimal tax design as redistributional arbitrage. TSE Working Paper, n. 22-1284, Toulouse

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We study optimal tax design based on the idea that policy-makers face trade-offs between multiple margins of redistribution. Within a Mirrleesian economy with earnings, consumption and retirement savings, we derive a novel formula for optimal income and savings distortions based on redistributional arbitrage. We establish a sufficient statistics representation of the labor income and capital tax rates on top income earners in dynamic environments, which relies on the observed distributions of both income and consumption. Because consumption has a thinner Pareto tail than income, our quantitative results suggest that it is optimal to shift a substantial fraction of the top earners' tax burden from income to savings.

Item Type: Monograph (Working Paper)
Language: English
Date: January 2022
Place of Publication: Toulouse
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 13 Jan 2022 14:30
Last Modified: 24 Jan 2023 13:03
OAI Identifier: oai:tse-fr.eu:126368
URI: https://publications.ut-capitole.fr/id/eprint/44175
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