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Income Taxation with Labor Responses

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  • UDO EBERT
  • PATRICK MOYES

Abstract

When incomes are exogenously given, U. Jakobsson (Journal of Public Economics s 5 (1976), 161–168) proved that a progressive tax structure always reduces inequality. We investigate the implications for effective progression of relaxing the assumption of exogenous incomes when individuals have the same preferences but different talents. We extend the standard result and conclude that it is generally impossible to disentangle the respective contributions to inequality reduction of the tax schedule and agents' preferences. For a linear tax schedule to result in less unequally distributed incomes it is sufficient that the elasticity of labor supply be nonincreasing in exogenous income and nondecreasing in productivities. The latter condition proves to be necessary and sufficient when the tax schedule is proportional.

Suggested Citation

  • Udo Ebert & Patrick Moyes, 2007. "Income Taxation with Labor Responses," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(4), pages 653-682, August.
    • Handle: RePEc:bla:jpbect:v:9:y:2007:i:4:p:653-682
    DOI: 10.1111/j.1467-9779.2007.00324.x
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    Cited by:

    1. Oriol Carbonell-Nicolau & Humberto Llavador, 2021. "Elasticity determinants of inequality-reducing income taxation," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(1), pages 163-183, March.
    2. Oriol Carbonell-Nicolau & Humberto Llavador, 2021. "Inequality, Bipolarization, and Tax Progressivity," American Economic Journal: Microeconomics, American Economic Association, vol. 13(4), pages 492-513, November.
    3. Udo EBERT & Patrick MOYES, 2017. "The Impact of Talents and Preferences on Income Inequality," Cahiers du GREThA (2007-2019) 2017-15, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    4. Markina Oksana, 2022. "Taxation, Inequality, and Poverty: Evidence from Ukraine," Central European Economic Journal, Sciendo, vol. 9(56), pages 1-18, January.
    5. Udo Ebert & Patrick Moyes, 2018. "Talents, preferences and income inequality," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 51(1), pages 13-50, June.
    6. Arsen Palestini & Giuseppe Pignataro, 2023. "Inequality assessment in a dynamic framework with heterogenous agents," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 40(2), pages 469-494, July.

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