Tax-benefit revealed social preferences

Pre-print, Working paper: This paper inverts the usual logic of applied optimal income taxation. It starts from the observed distribution of income before and after redistribution and corresponding marginal tax rates. Under a set of simplifying assumptions, it is then possible to recover the social welfare function that would make the observed marginal tax rate schedule optimal. In this framework, the issue of the optimality of an existing tax-benefit system is transformed into the issue of the shape of the social welfare function associated with that system and whether it satisfies elementary properties. This method is applied to the French redistribution system with the interesting implication that the French redistribution authority may appear, under some plausible scenario concerning the size of the labor supply behavioral reactions, non Paretian (e.g. giving negative marginal social weights to the richest class of tax payers).

Author(s)

François Bourguignon, Amadéo Spadaro

Date of publication
  • 2008
Keywords JEL
C63 D63 H11 H21
Keywords
  • Social welfare function
  • Optimal income tax
  • Microsimulation
  • Optimal inverse problem
Internal reference
  • PSE Working Papers n°2008-37
Version
  • 1