Introductory Tax Models
This chapter presents two introductory tax models. Section 2.2 discusses intragenerational redistribution with flexible labor supply. There are at least two types of workers, differing in productivities. Their labor supply is flexible and a flat basic income is financed from a proportional tax system which diminishes inequalities. Total redistribution is destructive but depending on the strength of labor disutility, a well-chosen tax rate can eliminate the worst inequalities. Section 2.3 analyzes redistribution with tax morale, where workers pay taxes to finance a basic income. Depending on their exogenously given tax morale, they underreport their true earnings more or less. In the socially optimal tax system, the stronger the tax morale, the higher (rather than the lower) the tax rate.
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