Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/126335
Authors: 
Kanbur, Ravi
Pirttilä, Jukka
Tuomala, Matti
Ylinen, Tuuli
Year of Publication: 
2015
Series/Report no.: 
WIDER Working Paper 2015/054
Abstract: 
The existing literature on optimal taxation typically assumes there exists a capacity to implement complex tax schemes, which is not necessarily the case for many developing countries. We examine the determinants of optimal redistributive policies in the context of a developing country that can only implement linear tax policies due to administrative reasons. Further, the reduction of poverty is typically the expressed goal of such countries, and this feature is also taken into account in our model. We derive the optimality conditions for linear income taxation, commodity taxation, and public provision of private and public goods for the poverty minimization case, and compare the results to those derived under a general welfarist objective function. We also study the implications of informality on optimal redistributive policies for such countries, and comment on the potential for minimum wage regulation. The exercise reveals nontrivial differences in optimal tax rules under the different assumptions. The derived formulae also capture the sufficient statistics that the governments need to pay attention to when designing poverty alleviation policies.
Subjects: 
redistribution
income taxation
commodity taxation
public good provision
poverty
JEL: 
H21
H40
O12
ISBN: 
978-92-9230-943-5
Document Type: 
Working Paper

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