Ruhr Economic Papers

Ruhr Economic Papers #762

Optimal Taxation Under Different Concepts of Justness

by Robin Jessen, Maria Metzing and Davud Rostam-Afschar

RWI, 08/2018, 34 S./p., 8 Euro, ISBN 978-3-86788-888-2 DOI: 10.4419/86788888

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Abstract

A common assumption in the optimal taxation literature is that the social planner maximizes a welfarist social welfare function with weights decreasing with income. However, high transfer withdrawal rates in many countries imply very low weights for the working poor in practice. We extend the optimal taxation framework by Saez (2002) to allow for alternatives to welfarism. We calculate weights of a social planner’s function as implied by the German tax and transfer system based on the concepts of welfarism, minimum absolute and minimum relative sacrifice. We find that the minimum absolute sacrifice principle is in line with social weights that decline with net income.

JEL-Classification: D63, D60, H21, H23

Keywords: Justness; optimal taxation; income redistribution; equal sacrifice; inequality; subjective preferences

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