Abstract
We adopt a philosophical perspective of equality of opportunity and address the issue of whether outcome inequalities are legitimate when they come from differences in talent. We propose a cumulative definition of talent. In a dynamic setting, talent is a by-product of past-effort, current effort and innate talent, which becomes a residual as time goes by. It implies that talent can change from the status of a circumstance when people are young to an almost responsibility variable when people are getting older. We plug this definition of talent into the Mirrlees model of optimal non-linear income tax and we show that the conflict between the principle of compensation and the principle of natural reward boils down to the optimal income tax with Rawlsian weights in the second-best setting.
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Acknowledgements
I thank Marc Fleurbaey and Etienne Lehmann for some exchanges on the matter of this paper. I am very grateful to the editor, Dirk Van de gaer and two referees for comments on earlier versions of this paper which has led to considerable improvements. This paper benefits from the support of the Northface project IMCHILD. The usual caveat applies.
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Trannoy, A. Talent, equality of opportunity and optimal non-linear income tax. J Econ Inequal 17, 5–28 (2019). https://doi.org/10.1007/s10888-019-09409-7
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DOI: https://doi.org/10.1007/s10888-019-09409-7