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Tax–benefit revealed social preferences

Abstract

This paper inverts the usual logic of applied optimal income taxation. It starts from the observed distribution of income before and after redistribution and corresponding marginal tax rates. Under a set of simplifying assumptions, it is then possible to recover the social welfare function that would make the observed marginal tax rate schedule optimal. In this framework, the issue of the optimality of an existing tax–benefit system is transformed into the issue of the shape of the social welfare function associated with that system and whether it satisfies elementary properties. This method is applied to the French redistribution system with the interesting implication that the French redistribution authority may appear, under some plausible scenario concerning the size of the labor supply behavioral reactions, non Paretian (e.g. giving negative marginal social weights to the richest class of tax payers).

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Correspondence to Amedeo Spadaro.

Additional information

This is a completely revised version of the paper “Tax–Benefit Revealed Social Preferences”. PSE Working Paper n° 2005-22. We thank Tony Atkinson, Salvador Balle, Roger Guesnerie, Jim Mirrlees, Emmanuel Saez, two anonymous referees and the participants in seminars at Barcelona, Madrid, Berlin, Paris, Venezia and Formentera for useful comments. We also thank Pascal Chevalier and Alexandre Baclet from INSEE for helping us with the French Fiscal Data. We are solely responsible for any remaining error. Amedeo Spadaro acknowledges financial support from the Spanish Government (ECO2008-06395-C05-02/ECON) and the French Government (ANR BLAN06-2_139446).

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Bourguignon, F., Spadaro, A. Tax–benefit revealed social preferences. J Econ Inequal 10, 75–108 (2012). https://doi.org/10.1007/s10888-010-9153-0

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Keywords

  • Social welfare function
  • Optimal income tax
  • Microsimulation
  • Optimal inverse problem

JEL Classification

  • H11
  • H21
  • D63
  • C63