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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/57293
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| Title: | | Signing distortions in optimal tax and other adverse selection problems with random participation  |
| Authors: | | Jacquet, Laurence Lehmann, Etienne Van der Linden, Bruno |
| Issue Date: | | 2012 |
| Series/Report no.: | | CESifo working paper: Public Finance 3766 |
| Abstract: | | We develop a methodology to sign output distortions in the random participation framework. We apply our method to monopoly nonlinear pricing problem, to the regulatory monopoly problem and mainly to the optimal income tax problem. In the latter framework, individuals are heterogeneous across two unobserved dimensions: their skill and their disutility of participation to the labor market. We derive a fairly mild condition for optimal marginal tax rates to be non negative everywhere, implying that in-work effort is distorted downwards. Numerical simulations for the U.S. confirm this property. Moreover, it is typically optimal to provide a distinct level of transfer to the non-employed and to workers with zero or negligible earnings. |
| Subjects: | | adverse selection optimal taxation random participation |
| JEL: | | H21 H23 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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