Prete V., Sommacal A., Zoli C. (2016).

Optimal Non-Welfarist Income Taxation for Inequality and Polarization Reduction. (ISSN: 2036-2919 N° 23). Dipartimento Scienze Economiche

 

Abstract:

We adopt a non-welfarist approach to investigate the effect of different redistributive objectives on the shape of the optimal tax schedule. We consider inequality and income polarization reduction objectives and we identify socially desirable three brackets piecewise linear tax systems that allow to collect a given revenue. The optimal tax problem is formalized as the maximization of families of rank-dependent social evaluation function defined over net incomes. These functions allow to incorporate within the same social evaluation model concerns for inequality and for polarization reduction. Both with fixed and variable labour supply the optimal tax schemes substantially differ as the focus moves from the reduction of inequality to the one of polarization. In the case of inequality concerns the optimal tax system is mainly convex exhibiting increasing marginal tax rates unless when labour supply elasticities are higher. While in case of polarization concerns the optima tax scheme is not-convex with reduced marginal tax rate for the upper income bracket.