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The Second-Best Lump-Sum Taxation of Observable Characteristics

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  • Bennett, John

Abstract

A system of lump-sum taxes/subsidies based on easily observable nonshiftable characteristics (such as age or type of disability) is considered. To calculate the tax schedule, the government must first have an estimate of the wage rate density function for each category of characteristics. An individual's tax liability is then determined using his/her characteristics as a screening device. This scheme may also be used to compensate for labor market discrimination. Unlike first-best, lump-sum taxation, it is incentive compatible. The possible combination with linear income taxation is also considered.

Suggested Citation

  • Bennett, John, 1987. "The Second-Best Lump-Sum Taxation of Observable Characteristics," Public Finance = Finances publiques, , vol. 42(2), pages 227-235.
    • Handle: RePEc:pfi:pubfin:v:42:y:1987:i:2:p:227-35
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    Cited by:

    1. Michael R. Powers & Larry Y. Tzeng, 1998. "Insurance Premium Taxes: a Lump-Sum Proposal," Public Finance Review, , vol. 26(1), pages 53-66, January.
    2. Kanbur, Ravi & Tuomala, Matti, 2016. "Groupings and the gains from tagging," Research in Economics, Elsevier, vol. 70(1), pages 53-63.
    3. Louis Kaplow, 2007. "Optimal income transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(3), pages 295-325, June.
    4. Alessandro Balestrino & Umberto Galmarini, 2005. "On the Redistributive Properties of Presumptive Taxation," CESifo Working Paper Series 1381, CESifo.
    5. Alan D. Viard, 2001. "Some Results on the Comparative Statics of Optimal Categorical Transfer Payments," Public Finance Review, , vol. 29(2), pages 148-180, March.

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