Optimal Taxation When the Tax Burden Matters

Survey evidence shows that the magnitude of the tax liability plays a role in value judgements about which groups deserve tax breaks. We demonstrate that the German tax-transfer system conflicts with a welfarist inequality averse social planner. It is consistent with a planner who is averse to both...

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Bibliographic Details
Published in:Finanzarchiv 2022-01, Vol.78 (3), p.312-341
Main Authors: Rostam-Afschar, Davud, Jessen, Robin, Metzing, Maria
Format: Article
Language:English
Subjects:
Disposable income
Fiscal policy
Gross income
Income redistribution
Inequality
Labor supply
Liability
Libertarianism
Low income groups
Net income
Optimal taxation
Policy making
Polls & surveys
Tax cuts
Tax rates
Taxation
Taxes
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Summary:Survey evidence shows that the magnitude of the tax liability plays a role in value judgements about which groups deserve tax breaks. We demonstrate that the German tax-transfer system conflicts with a welfarist inequality averse social planner. It is consistent with a planner who is averse to both inequality and high tax liabilities. The tax-transfer schedule reflects non-welfarist value judgements of citizens or non-welfarist aims of policy makers. We extend our analysis to several European countries and the USA to show that their redistributive systems can be rationalized with an inequality averse social planner for whom the tax burden matters.
ISSN:0015-2218
1614-0974
DOI:10.1628/fa-2022-0004