Optimal taxation, social contract and the four worlds of welfare capitalism

Drawing from the formal setting of the optimal tax theory (Mirrlees 1971), the paper identifies the level of Rawlsianism of some European social planners starting from the observation of real data and redistribution systems and uses it to build a metric that allows measuring the degree of (dis)similarity of the redistribution systems analyzed. It must be considered as a contribution to the comparative research on the structure and typology of the Welfare State. In particular we consider the optimal taxation model that combines both intensive and extensive margins of labor supply, as suggested by Saez (2002) in order to assess the degree of decommodification of seven European welfare systems. We recover the shape of the social welfare function implicit in tax-benefit systems by inverting the model on actual effective tax rates, as if existing systems were optimal according to some Mirrleesian social planner. Actual distributions of incomes before and after redistribution are obtained using a pan-European tax-benefit microsimulation model. Results are discussed in the light of standard classifications of welfare regimes in Europe. There appears to be a clear coincidence of high decommodification willingness and high Rawlsianism in the Scandinavian, social-democratically influenced welfare states (Denmark). There is an equally clear coincidence of low decommodification willingness and utilitarianism in the Anglo–Saxon liberal model (UK) and in the Southern European welfare states (Italy and Spain). Finally, the Continental European countries (Finland, Germany and France) group closely together in the middle of the scale, as corporatist and etatist.Optimal income taxation, tax-benefit policy, microsimulation, comparative social policy analysis, welfare state models.

Optimal Nonlinear Labor Income Taxation in Dynamic Economies

The aim of this paper is to explore the characteristics of the optimal nonlinear labor income tax in dynamic economies with information asymmetries and human capital accumulation. We develop a dynamic optimal income tax model in which agent’s productivity evolves over time according to two different factors: an exogenous component and a learning by doing process endogenous to the fiscal policy. The latter is determined by the government, maximizing in the initial period a social welfare function capturing some level of aversion to inequality. We characterize analytically the first order condition driving the optimal tax schedule in a model in which agents choose the consumption and labor supply patterns that maximize their lifetime utility function. We show that the inclusion of the endogenous evolution of productivities into the tax problem changes the results with respect to the static framework `a la Mirrlees (1971). We find that the optimal tax strategy balances social marginal costs of increasing marginal tax rates with social marginal benefits of doing so. The costs are related with the reduction of both past and future human capital accumulation, with the negative impact on aggregate social welfare due to the reduction of the individual utility of all the agents paying more taxes and with the increase of the necessity to redistribute more in the future (given that the spread among social marginal weights of each agents will be higher). The benefits derive from the increase of the instantaneous tax receipts with the consequent reduction of the overall tax burden all along the time horizon and from the reduction of present inequality of incomes and future inequality of the productivities. As a particular extreme result we find that it can be optimal to subsidize (instead of taxing) at the margin high productivity agents.Dynamic Optimal Income Taxation, Private Information, Learning by Doing.

Optimal Taxation, Social Contract and the Four Worlds of Welfare Capitalism

Drawing from the formal setting of the optimal tax theory (Mirrlees 1971), the paper identifies the level of Rawlsianism of some European social planner starting from the observation of the real data and redistribution systems and uses it to build a metric that allows measuring the degree of (dis)similarity of the redistribution systems analyzed. It must be considered as a contribution to the comparative research on the structure and typology of the Welfare State (Esping-Andersen, 1990). In particular we consider the optimal taxation model that combines both intensive (Mirrlees) and extensive (Diamond) margins of labor supply, as suggested by Saez (2002) in order to assess the degree of decommodification of seven European welfare systems. We recover the shape of the social welfare function implicit in taxbenefit systems by inverting the model on actual effective tax rates, as if existing systems were optimal according to some Mirrleesian social planner. Actual distributions of incomes before and after redistribution are obtained using a pan-European tax-benefit microsimulation model. Results are discussed in the light of standard classifications of welfare regimes in Europe. There appears to be a clear coincidence of high decommodification and high Rawlsianism in the Scandinavian, social-democratically influenced welfare states (Denmark). There is an equally clear coincidence of low decommodification and utilitarianism in the Anglo–Saxon liberal model (UK) and in the Southern European welfare states (Italy and Spain). Finally, the Continental European countries (Finland, Germany and France) group closely together in the middle of the scale, as corporatist and etatist.Optimal income taxation, tax-benefit policy, microsimulation, comparative social policy analysis, welfare state models

Microsimulation as a Tool for Evaluating Redistribution Policies

During the last 20 years, microsimulation models have been increasingly applied in qualitative and quantitative analysis of public policies. This paper discusses microsimulation techniques and their theoretical background as a tool for the analysis of public policies. It next analyses basic principles for using microsimulation models and interpreting their results, with emphasis on tax incidence, redistribution and poverty analysis. It then discusses social welfare analysis permitted by microsimulation techniques and points to the limits of present approaches and some directions for future developments.Keywords: Microsimulation; Evaluation of Public Policies; Redistribution; Poverty, Inequality.

¿Renta Mínima o Mínimo Vital? Un Análisis sobre los Efectos Redistributivos de Posibles Reformas del Sistema Impositivo Español

Durante los últimos 20 años, el sistema redistributivo español ha sufrido grandes cambios. En 1999, el Partido Popular introdujo una nueva Ley y el debate académico y político sobre sus efectos sobre la igualdad y la eficiencia aún está abierto. En el presente trabajo pretendemos analizar los efectos redistributivos de diferentes escenarios impositivos, gracias al uso de un modelo de microsimulación. Utilizaremos como escenario base el sistema vigente en 1999 y lo compararemos con el sistema de 1998. Además, analizaremos dos reformas basadas en un tipo único, una de ellas utilizando un renta mínima y la otra utilizando un mínimo vital. Finalmente, nos centraremos en los efectos de algunas de las propuestas contenidas en un informe del Partido Socialista (PSOE, 2002). El análisis redistributivo se ha realizado usando los índices de desigualdad y progresividad estándar (coeficiente de Gini, índice de Atkinson, Entropía, Kakwani y Reynolds-Smolensky). Tal y como cabía esperar, los resultados de nuestro trabajo parecen indicar que el escenario basado en un una renta mínima y un tipo único tiene un gran impacto redistributivo comparado con el basado en un mínimo vital y un tipo único. Lo interesante es que, comparado con el sistema fiscal actual, el coste de dicha reforma no es demasiado elevado en términos de presión fiscal. El tipo único dependerá de la cantidad de renta mínima que se entrega a cada individuo, pero con un tipo único entorno a un 25%-30% es posible lograr un gran impacto redistributivo, sobretodo para los hogares situados en las decilas inferiores de la distribución. En todo caso, todos los resultados deben ser considerados con precaución debido a los supuestos simplificadores realizados, entre los que destaca la falta de reacciones de comportamiento de los individuos ante cambios en el sistema fiscal.Microsimulation, Spanish Personal Income Tax, Redistribution, Income Inequality.

Descripción técnica del modelo de microsimulación del sistema fiscal español “GLADHISPANIA”

The microsimulation models simulate the tax-benefit system for a sample of individuals or households obtained from a microeconomic survey. The results obtained for each household or individual will be used to consider the effects on the tax collection and the distribution of the disposable income before changes in the tax-benefit system. In the present work GLADHISPANIA is described, a model of microsimulation able to predict the effects the last reforms of the PIT carried out recently. As well as, other proposals, discussed in the academic and political circles, based in a flat tax.Microsimulation, Spanish Personal Income Tax, Redistribution, Income Inequality.

Education, redistributive taxation and confidence

"We consider redistributional taxation between people with and without human capital if education is endogenous and if individuals differ in their perceptions about own ability. Those who see their ability as low like redistributive taxation because of the transfers it generates. Those who see their ability as high may also like redistributive taxation because it stops other people receiving education and increases the quasi rents on their own human capital. It is surprising that this rather indirect effect can overcompensate them for the income loss from taxation and make the overconfident want higher taxes than the less confident do. The results, however, turn out to be in line with empirical evidence on the desired amount of redistribution among young individuals." (author's abstract)"Betrachtet wird die Steuerumverteilung zwischen Individuen mit hohem und niedrigem Ausbildungsstand, wobei angenommen wird, dass Bildung endogen ist und die Individuen unterschiedliche Wahrnehmungen über ihre eigenen Fähigkeiten haben. Diejenigen, die ihre Fähigkeiten niedrig einschätzen bevorzugen eine Steuerumverteilung, da durch sie eine (Vermögens-)Übertragung erzeugt wird. Diejenigen, die ihre Fähigkeiten sehr hoch einschätzen bevorzugen ebenfalls eine Steuerumverteilung, da hierdurch andere Individuen davon abgehalten werden, Bildung zu erwerben und somit die Quasi-Rechte der ersteren aus ihrer Ausbildung erhöht werden. Dieser indirekte Effekt kann den Einkommensverlust durch Steuern überkompensieren. Die Bestausgebildesten fordern sogar höhere Steuern als die Individuen mit niedrigerem Bildungsniveau. Die Ergebnisse entsprechen den empirisch beobachteten gewünschten Umverteilungsbeträgen unter jungen Individuen." (Autorenreferat