Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/286748 
Authors: 
Year of Publication: 
2021
Citation: 
[Journal:] Social Choice and Welfare [ISSN:] 1432-217X [Volume:] 57 [Issue:] 2 [Publisher:] Springer [Place:] Berlin, Heidelberg [Year:] 2021 [Pages:] 301-346
Publisher: 
Springer, Berlin, Heidelberg
Abstract: 
This study simulates three income tax scenarios in a Mirrleesian setting for 24 EU countries using data from the 2014 Structure of Earnings Survey. In scenario 1, each country individually maximizes its own welfare (benchmark). In scenarios 2 and 3, total welfare in the EU is maximized over a common budget constraint. Unlike scenario 2, the social planner of scenario 3 differentiates taxes by country of residence. If a common tax and transfer system were implemented in the EU, countries with a relatively higher mean wage rate—particularly those in Western and some of the Northern European countries—would transfer resources to the others. Scenario 2 implies increased labor distortions for almost all countries and, hence, leads to a contraction in total output. Scenario 3 produces higher (lower) marginal taxes for high- (low-) mean countries compared to the benchmark. The change in total output depends on the income effects on labor supply. Overall, total welfare is higher for the scenarios involving a European tax and transfer system despite more than two thirds of all the agents becoming worse off relative to the benchmark. A politically more feasible integrated tax system improves the well-being of almost half of all the EU but considerably reduces the aggregate welfare benefits.
JEL: 
H21
H24
F55
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Article
Document Version: 
Published Version

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