IDEAS home Printed from https://ideas.repec.org/p/fit/wpaper/19.html
   My bibliography  Save this paper

How Does Predistribution Affect Redistribution?

Author

Listed:
  • Ravi Kanbur

    (Cornell University)

  • Matti Tuomala

    (Tampere University and Finnish Centre of Excellence in Tax Systems Research (FIT))

Abstract

This paper presents an analysis of the consequences for redistribution policies of achieving a more equal predistribution, that is, a more equal distribution of the predetermined income earning capabilities that individuals bring to the market. We show that optimal fiscal policies are less redistributive when the predistribution is more equal. We then quantify the value of a more equal predistribution. We show that total consumption is higher with a more equal predistribution. We also develop a money metric measure of social welfare and show that a more equal predistribution increases this measure for a Utilitarian and Prioritarian Social Welfare Function but may decrease it for the Maximin.

Suggested Citation

  • Ravi Kanbur & Matti Tuomala, 2024. "How Does Predistribution Affect Redistribution?," Working Papers 19, Finnish Centre of Excellence in Tax Systems Research.
    • Handle: RePEc:fit:wpaper:19
    as

    Download full text from publisher

    File URL: https://verotutkimus.fi/verotutkimus/wp-content/uploads/2024/01/FIT-WP19-Kanbur-Tuomala-Predistibution-190124.pdf
    File Function: Revised version, 2024
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Momi Dahan & Michel Strawczynski, 2012. "The Optimal Asymptotic Income Tax Rate," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(5), pages 737-755, October.
    2. Tuomala, Matti, 2016. "Optimal Redistributive Taxation," OUP Catalogue, Oxford University Press, number 9780198753414.
    3. Pertti Haaparanta & Ravi Kanbur & Tuuli Paukkeri & Jukka Pirttilä & Matti Tuomala, 2022. "Promoting education under distortionary taxation: equality of opportunity versus welfarism," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(2), pages 281-297, June.
    4. Atkinson, A. B., 1996. "Public Economics in Action: The Basic Income/Flat Tax Proposal," OUP Catalogue, Oxford University Press, number 9780198292166.
    5. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
    6. Tuomala, Matti, 1984. "On the optimal income taxation : Some further numerical results," Journal of Public Economics, Elsevier, vol. 23(3), pages 351-366, April.
    7. Diamond, Peter A, 1998. "Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates," American Economic Review, American Economic Association, vol. 88(1), pages 83-95, March.
    8. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
    9. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(1), pages 205-229.
    10. Revesz, John T, 1989. "The Optimal Taxation of Labour Income," Public Finance = Finances publiques, , vol. 44(3), pages 453-475.
    Full references (including those not matched with items on IDEAS)

    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. Boadway, Robin & Jacquet, Laurence, 2008. "Optimal marginal and average income taxation under maximin," Journal of Economic Theory, Elsevier, vol. 143(1), pages 425-441, November.
    2. Louis Kaplow, 2022. "Optimal Income Taxation," NBER Working Papers 30199, National Bureau of Economic Research, Inc.
    3. Spencer Bastani, 2015. "Using the Discrete Model to Derive Optimal Income Tax Rates," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 71(1), pages 106-117, March.
    4. Louis Kaplow, 2024. "Optimal Income Taxation," Journal of Economic Literature, American Economic Association, vol. 62(2), pages 637-738, June.
    5. Zoutman, Floris T. & Jacobs, Bas, 2016. "Optimal redistribution and monitoring of labor supply," Journal of Public Economics, Elsevier, vol. 135(C), pages 15-31.
    6. Bas Jacobs, 2013. "Optimal redistributive tax and education policies in general equilibrium," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(2), pages 312-337, April.
    7. Støstad, Morten Nyborg & Cowell, Frank, 2024. "Inequality as an externality: consequences for tax design," LSE Research Online Documents on Economics 123752, London School of Economics and Political Science, LSE Library.
    8. Islam, Nizamul & Colombino, Ugo, 2018. "The case for NIT+FT in Europe. An empirical optimal taxation exercise," Economic Modelling, Elsevier, vol. 75(C), pages 38-69.
    9. Sören Blomquist & Vidar Christiansen & Luca Micheletto, 2010. "Public Provision of Private Goods and Nondistortionary Marginal Tax Rates," American Economic Journal: Economic Policy, American Economic Association, vol. 2(2), pages 1-27, May.
    10. Auerbach, Alan J. & Hines, James Jr., 2002. "Taxation and economic efficiency," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 21, pages 1347-1421, Elsevier.
    11. Rolf Aaberge & Ugo Colombino, 2014. "Labour Supply Models," Contributions to Economic Analysis, in: Handbook of Microsimulation Modelling, volume 127, pages 167-221, Emerald Group Publishing Limited.
    12. Marko Ledić & Ivica Rubil & Ivica Urban, 2023. "Tax progressivity and social welfare with a continuum of inequality views," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(5), pages 1266-1296, October.
    13. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(1), pages 205-229.
    14. Louis Kaplow, 2007. "Optimal income transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(3), pages 295-325, June.
    15. Lawson, Nicholas, 2019. "Taxing the job creators: Efficient taxation with bargaining in hierarchical firms," Labour Economics, Elsevier, vol. 56(C), pages 1-25.
    16. Boadway,Robin & Cuff,Katherine, 2022. "Tax Policy," Cambridge Books, Cambridge University Press, number 9781108949453, January.
    17. Kessing, Sebastian G. & Konrad, Kai A., 2005. "Union Strategy and Optimal Income Taxation," IZA Discussion Papers 1545, Institute of Labor Economics (IZA).
    18. Jacobs, Bas & Boadway, Robin, 2014. "Optimal linear commodity taxation under optimal non-linear income taxation," Journal of Public Economics, Elsevier, vol. 117(C), pages 201-210.
    19. Kanbur, Ravi & Tuomala, Matti, 2016. "Groupings and the gains from tagging," Research in Economics, Elsevier, vol. 70(1), pages 53-63.
    20. Kessing, Sebastian G. & Konrad, Kai A., 2006. "Union strategy and optimal direct taxation," Journal of Public Economics, Elsevier, vol. 90(1-2), pages 393-402, January.

    More about this item

    Keywords

    Predistribution; Redistribution; Optimal Non-linear Taxation; Marginal Tax Rates; Social Welfare Function;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

    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:fit:wpaper:19. 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: Marjukka Hourunranta (email available below). General contact details of provider: https://edirc.repec.org/data/fitsrfi.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.