Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/222327 
Year of Publication: 
2020
Series/Report no.: 
ECONtribute Discussion Paper No. 001
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
Abstract: 
This paper provides necessary and sufficient conditions for the existence of Pareto-improving tax reforms. The conditions can be expressed as sufficient statistics and have a wide range of potential applications in public finance. We discuss one such application in detail: the introduction of the Earned Income Tax Credit (EITC) in the US. We find that the EITC can be viewed as a response to an inefficiency in the tax and transfer system prevailing at the time. This adds a newperspective to the literature on why the EITC is a good idea, emphasizing Pareto improvements rather than equity-efficiency trade-offs.
Subjects: 
Tax reforms
Non-linear income taxation
Optimal taxation
Earned Income Tax Credits
Pareto Efficiency
JEL: 
C72
D72
D82
H21
Document Type: 
Working Paper

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