Laurence Jacquet

Optimal Redistributive Taxation with Both Extensive and Intensive Responses

We derive a general optimal income tax formula when individuals respond along both the intensive and extensive margins and when income effects can prevail. Individuals are heterogeneous across two dimensions: their skill and their disutility of participation. Prefer-ences over consumption and work effort can differ with respect to the level of skill, with only the Spence-Mirrlees condition being imposed. Employing a new tax perturbation approach that integrates the nonlinearity of the tax function into the behavioral elasticities, we derive a fairly mild condition for optimal marginal tax rates to be nonnegative everywhere. Numerical simulations using U.S. data confirm the mildness of our conditions. The extensive margin strongly reduces the level of optimal marginal tax rates.

Optimal Marginal and Average Income Taxation under Maxi-min

Using the Mirrlees optimal income tax model under maximin, we derive fairly mild conditions for a decreasing marginal tax rate throughout the skill distribution with no bunching, a strictly concave tax function in income and a single-peaked average tax schedule. Assuming additive preferences and an isoelastic disutility of labor function, these tax profiles are implied by aggregate skills that are non-decreasing with the skill level. If preferences are quasilinear in leisure or in consumption, these tax profiles are also obtained under a large set of skill distributions.

Workforce or workfare

This article explores the use of workfare as part of an optimal tax mix when labor supply responses are along the extensive margin. Particular attention is paid to the interaction between workfare and an earned income tax credit, two policies that are designed to provide additional incentives for individuals to enter the labor force. This article shows that, despite their common goal, these policies are often at odds with each other.

Optimal Labor Income Taxation under Maximin: An Upper Bound

This paper assumes the standard optimal income tax model of Mirrlees (Review of Economic Studies, 1971). It gives fairly mild conditions under which the optimal nonlinear labor income tax profile derived under maximin has higher marginal tax rates than the ones derived with welfarist criteria that sum over the population any concave transformation of individual utilities. This strict dominance result is always valid close to the bounds of the skill distribution and almost everywhere (except at the upper bound) when quasilinear-in-consumption preferences are assumed.

Tagging and Redistributive Taxation with Imperfect Disability Monitoring

This paper studies the optimal income redistribution and optimal monitoring when disability benefits are intended for disabled people but some of the disabled do not claim disability benefits and enter the labor force. Classification errors also occur. Some able applicants with high distaste for work are falsely granted disability benefits (type II errors) and some disabled applicants are denied disability benefits (type I errors). The accuracy of monitoring depends on the resources devoted to it. Labor supply responses are at the extensive margin. The paper derives the optimal income tax-transfer schedule that incorporates welfare and disability benefits and takes into account monitoring costs. The cost of monitoring and the co-existence of welfare and disability benefits play in favor of Earned Income Tax Credits for disabled workers who forgo disability benefits as well as for disabled workers who forgo welfare assistance.

Workforce or Workfare? The Optimal Use of Work Requirements When Labour is Supplied Along the Extensive Margin

This paper explores the use of workfare as part of a tax mix when labour supply responses are along the extensive margin. In an economy where the government has a priori chosen any tax-and-benefit schedule, we show that, despite their common goal of providing additional incentives for individuals to enter the labour force, workfare and an earned income tax credit are at odds with each other. We also show that, in the presence of an optimal nonlinear income tax, introducing unproductive workfare is always suboptimal when individuals face the same disutility of being on workfare. When this disutility is heterogeneous, unproductive workfare may be a useful policy tool.

Take it or Leave it: Optimal Transfer Programs, Monitoring and Takeup

This paper studies the optimal income redistribution and monitoring when disability benefits are intended for disabled people but where some able agents with high distastes for work mimic them (type II errors). Labor supply responses are at the extensive margin and endogenous takeup costs burden disabled recipients (due to a reputational externality caused by cheaters or due to a snowball effect). Under a non-welfarist criterion which does not compensate for distaste for work, (inactive) disabled recipients get a strictly lower consumption than disabled workers. The usual conditions under which the optimal transfer program is a Negative Income Tax or an Earned Income Tax Credit are challenged, due to monitoring. We also show that even if perfect monitoring is costless, it is optimal to have type II errors. These results are robust to a utilitarian criterion. Numerical simulations calibrated on US data are provided.