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Nonlinear and piecewise linear income taxation, and the subsidization of work-related goods
Linnaeus University, School of Business and Economics, Department of Economics and Statistics. CESifo Munich, Germany. (Linnaeus University Centre for Discrimination and Integration Studies)
Uppsala university, Sweden.
CESifo Munich, Germany;University of Milan, Italy;Bocconi University, Italy.
2019 (English)In: International Tax and Public Finance, ISSN 0927-5940, E-ISSN 1573-6970, Vol. 26, no 4, p. 806-834Article in journal (Refereed) Published
Abstract [en]

We investigate how the social welfare gain of subsidizing work-related goods depends on whether the underlying income tax system is linear, piecewise linear or fully nonlinear, focusing on child care services as a paradigmatic example of goods/services that are complements with labor supply. Our quantitative analysis employs an empirically relevant labor supply model and shows that the welfare gain of an optimally chosen subsidy is negligible when the optimal income tax is restricted to be linear but about the same as under fully nonlinear taxation when the optimal income tax is restricted to be piecewise linear. Our findings enhance the policy relevance of the optimal tax argument in favor of providing subsidies to work-related goods and also shed light on the relative welfare gains of employing piecewise linear rather than fully nonlinear income taxes.

Place, publisher, year, edition, pages
Springer, 2019. Vol. 26, no 4, p. 806-834
National Category
Economics
Research subject
Economy, Economics
Identifiers
URN: urn:nbn:se:lnu:diva-80192DOI: 10.1007/s10797-019-09532-1ISI: 000472902900004OAI: oai:DiVA.org:lnu-80192DiVA, id: diva2:1285438
Available from: 2019-02-04 Created: 2019-02-04 Last updated: 2019-07-18Bibliographically approved

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Bastani, Spencer

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  • Other locale
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