income taxation and optimal policies

Louis Kaplow
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by Steven N. Durlauf and Lawrence E. Blume
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Abstract

Various economic literatures address the question whether first-best prescriptions for government policy require modification because redistributive income taxation distorts labour supply and cannot achieve the distributive ideal. Perhaps second-best rules for public goods provision, corrective taxation, public sector pricing, and other government activity should reflect concerns about distribution and labour supply distortion. Recent work demonstrates, however, that in basic cases first-best principles remain applicable. Demonstrations make use of income tax adjustments that preserve not only budget balance but also the pre-reform distribution of utility.
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See Also

I am grateful to Steven Shavell for comments and the John M. Olin Center for Law, Economics, and Business at Harvard University for financial support.
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How to cite this article

Kaplow, Louis. "income taxation and optimal policies." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 24 October 2014 <http://www.dictionaryofeconomics.com/article?id=pde2008_I000245> doi:10.1057/9780230226203.0771

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