IDEAS home Printed from https://ideas.repec.org/p/fgv/epgewp/725.html
   My bibliography  Save this paper

Sacrifice and efficiency of the income tax schedule

Author

Listed:
  • Costa, Carlos Eugênio da
  • Pereira, Thiago Neves

Abstract

We investigate the efficiency of equal sacrifice tax schedules in an economy which primitives are exactly those in Mirrlees (1971): a continuum of individuals with identical preferences defined over consumption and leisure who differ with respect to their labor market productivity. Using a separable specification for preferences we derive the minimum equal sacrifice allocation and recover the tax schedule that implements it. The separable specification allows us to use the methodology developed by Werning (2007b) to check whether the schedule is efficient, that is, whether there is no alternative tax schedule that raises more revenue while delivering less utility to no one. We find that inefficiency does not arise for most parametrizations we use to approximate the US economy. For the few cases for which inefficiency does arise, it does so only for very high levels of income and marginal tax rates.

Suggested Citation

  • Costa, Carlos Eugênio da & Pereira, Thiago Neves, 2011. "Sacrifice and efficiency of the income tax schedule," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 725, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    • Handle: RePEc:fgv:epgewp:725
    as

    Download full text from publisher

    File URL: https://repositorio.fgv.br/bitstreams/b40376b7-eda7-462d-b589-9a92ace22a42/download
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Berliant, Marcus & Gouveia, Miguel, 1993. "Equal sacrifice and incentive compatible income taxation," Journal of Public Economics, Elsevier, vol. 51(2), pages 219-240, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Normann Lorenz & Dominik Sachs, 2012. "Optimal Participation Taxes and Efficient Transfer Phase-Out," Working Paper Series of the Department of Economics, University of Konstanz 2012-37, Department of Economics, University of Konstanz.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mitra, Tapan & Ok, Efe A., 1997. "On the Equitability of Progressive Taxation," Journal of Economic Theory, Elsevier, vol. 73(2), pages 316-334, April.
    2. da Costa, Carlos E. & Pereira, Thiago, 2014. "On the efficiency of equal sacrifice income tax schedules," European Economic Review, Elsevier, vol. 70(C), pages 399-418.
    3. Peter J. Lambert & Helen T. Naughton, 2009. "The Equal Absolute Sacrifice Principle Revisited," Journal of Economic Surveys, Wiley Blackwell, vol. 23(2), pages 328-349, April.
    4. Carbonell-Nicolau, Oriol & Llavador, Humberto, 2018. "Inequality reducing properties of progressive income tax schedules: the case of endogenous income," Theoretical Economics, Econometric Society, vol. 13(1), January.
    5. Peter J. Lambert & Helen T. Naughton, 2006. "The Equal Sacrifice Principle Revisited," University of Oregon Economics Department Working Papers 2006-4, University of Oregon Economics Department, revised 01 Jun 2006.
    6. Conesa, Juan Carlos & Krueger, Dirk, 2006. "On the optimal progressivity of the income tax code," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1425-1450, October.
    7. Moyes, Patrick, 2003. "Redistributive effects of minimal equal sacrifice taxation," Journal of Economic Theory, Elsevier, vol. 108(1), pages 111-140, January.
    8. Hafiz Akhand, 1998. "On income tax functions: an application of robust, regression-based diagnostics to models of conditional means," Applied Economics Letters, Taylor & Francis Journals, vol. 5(5), pages 317-320.
    9. Johann K. Brunner, 2003. "Optimale direkte und indirekte Steuern bei unterschiedlicher Anfangsausstattung," Economics working papers 2003-10, Department of Economics, Johannes Kepler University Linz, Austria.
    10. German Cubas & Pedro Silos, 2020. "Social Insurance And Occupational Mobility," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(1), pages 219-240, February.
    11. Kristoffer Berg & Paolo Giovanni Piacquadio, 2020. "The Equal-Sacrifice Social Welfare Function with an Application to Optimal Income Taxation," CESifo Working Paper Series 8505, CESifo.
    12. Weinzierl, Matthew, 2014. "The promise of positive optimal taxation: normative diversity and a role for equal sacrifice," Journal of Public Economics, Elsevier, vol. 118(C), pages 128-142.
    13. Ok, Efe A., 1995. "On the principle of equal sacrifice in income taxation," Journal of Public Economics, Elsevier, vol. 58(3), pages 453-467, November.
    14. Robin Jessen & Maria Metzing & Davud Rostam-Afschar, 2017. "Optimal Taxation under Different Concepts of Justness," SOEPpapers on Multidisciplinary Panel Data Research 953, DIW Berlin, The German Socio-Economic Panel (SOEP).
    15. Sarte, Pierre-Daniel G., 1997. "Progressive taxation and income inequality in dynamic competitive equilibrium," Journal of Public Economics, Elsevier, vol. 66(1), pages 145-171, October.
    16. Thibault Gajdos & Bertrand Lhommeau, 2000. "L'attitude à l'égard des inégalités en France à la lumière du système de prélèvements socio-fiscal," Économie et Prévision, Programme National Persée, vol. 142(1), pages 47-65.
    17. Hindriks, Jean, 1999. "On the incompatibility between revenue maximisation and tax progressivity1," European Journal of Political Economy, Elsevier, vol. 15(1), pages 123-140, March.
    18. Tarroux, Benoît, 2019. "The value of tax progressivity: Evidence from survey experiments," Journal of Public Economics, Elsevier, vol. 179(C).
    19. Akhand, Hafiz & Liu, Haoming, 2002. "Marginal income tax rates in the United States: a non-parametric approach," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 383-404, March.
    20. Jin Kwon Hyun & Byung Lim, 2004. "Comparative Analysis of the Effective Income Tax Function: Empirical Evidence using LIS Data," LIS Working papers 369, LIS Cross-National Data Center in Luxembourg.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fgv:epgewp:725. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Núcleo de Computação da FGV EPGE (email available below). General contact details of provider: https://edirc.repec.org/data/epgvfbr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.