Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/82703 
Year of Publication: 
2004
Series/Report no.: 
Working Paper No. 2004:9
Publisher: 
Uppsala University, Department of Economics, Uppsala
Abstract: 
Non-linear income taxes and linear commodity taxes are analysed when people differ with respect to ability, high-skilled agents have heterogeneous preferences, and neither individual abilities nor preferences are observable. The paper highlights how informational constraints may motivate differential treatment of people with different preferences for leisure even if unequal treatment is not desirable per se. Which preference type that will be better or worse off, is shown to depend on the self-selection constraints associated with the information asymmetry. We characterize pure income tax optima, which may be bunching or separating optima. In particular, the income tax may not be able to distinguish between those low-income people who are low-skilled and those who have strong preference for leisure. As is shown, there may still be an impact on the optimum income tax schedule as it will depend on the composition of the population with respect to types of individuals. Finally, the paper addresses what can be achieved by commodity taxes when preferences are heterogeneous, in particular, in terms of targeting groups that the income tax is incapable of discriminating between.
Subjects: 
Optimum taxation
Heterogeneous preferences
Asymmetric information
JEL: 
H21
H23
Document Type: 
Working Paper

Files in This Item:
File
Size
194.52 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.