My last project with Alain Trannoy (EHESS, CNRS & AMSE) has just been released as a CESifo Working Paper. Click here to download it!
We solve the non-linear income tax program for a rank-dependent social welfare function à la Yaari, expressing the trade-off between size and inequality using the Gini or related families of positional indices. The key idea is that when agents optimize and absent bunching, ranks in the actual and optimal allocations become an invariant dimension. This allows us to obtain optimal marginal tax rates as a function of ranks, and numerically illustrate the relationship between ranks and taxes. For singles without children, the actual US tax schedule seems to indicate a distaste for differences in the upper part of the distribution.
At GATE – ENS de Lyon, we organize a new workshop series for front-line research in public and political economy. Explore PPD@ENSLyon‘s website !
Two editions have already taken place, focusing on Taxation and Inequality on the one hand, and on the Political Economy of Migration on the other hand.
The third edition of PPD@ENSLyon will be on the economics of social media. Welcome at ENS de Lyon on November 22nd!
The French National Research Agency selected the MIDDLECLASS project I coordinate for a 48-month grant. The team of economits @GATE – ENS DE LYON will collaborate with #Aix Marseille School of Economics and #CREST-Ecole Polytechnique. Looking forward to keeping you posted on our progress and findings!
My joint paper with H. Selin (IFAU) has just been accepted for publication in the Journal of Public Economics.
It addresses income shifting – one of the key questions when thinking about the design of a tax system as a whole. We study a simple economy, involving a benevolent policy-maker and a population of agents differing in terms of productivities, labor supply elasticities, and shifting costs. Paying special attention to the cost structure of income shifting, we highlight that when people who shift easily along the extensive margin are also more elastic in labor supply, giving them a lower tax rate is a good thing, and the government should not necessarily combat income shifting. This mechanism may be compared to third-degree price discrimination in industrial organization and works as a form of endogenous tagging. We explore this possibility numerically before showing that our results derived for a policy-maker optimally adjusting two linear tax instruments carry over when two fully non-linear taxes are potentially available.
My article “Marginal Deadweight Loss when the Income Tax is Nonlinear” joint with Sören Blomquist has been published in the Journal of Econometrics.
Most theoretical work on how to calculate the marginal deadweight loss has been done for linear taxes and for variations in linear budget constraints. This is quite surprising because most income tax systems are nonlinear, generating nonlinear budget constraints. Instead of developing the proper procedure to calculate the marginal deadweight loss for variations in nonlinear income taxes, a common procedure has been to linearize the nonlinear budget constraint and apply methods that are correct for variations in a linear income tax. Such a procedure leads to incorrect results. The main purpose of this paper is to show how to correctly calculate the marginal deadweight loss when the income tax is nonlinear. A second purpose is to evaluate the bias in results that obtains when a linearization procedure is used. Our main theoretical result is that the overall curvature of the tax system plays the same role as the curvature of indifference curves for the size of the marginal deadweight loss. Using numerical simulations calibrated on US data, we show that common linearization procedures may lead to substantial overestimation of the marginal deadweight loss.
Decreased transportation costs have led to the transmission of ideas and values across national borders that has helped reduce the barriers to international labor mobility. In this context, high-skilled individuals are more likely to vote with their feet in response to high income taxes. It is thus important to examine the magnitude of tax-driven migration responses in developed countries as well as the possible consequences of income tax competition between nation states. More specifically, how does the potential threat of migration affect a country’s optimal income tax policies?
Have a look at my recent policy article, joint with Alain Trannoy.
Teaching economics is not easy. This was the topic of a very interesting session @Jéco 2017, in which I was honored to be invited.
“Comment taxer et dépenser localement au XXIème siècle ?” In this lecture, I explain the challenges faced by current policies and introduce the tools and key mechanisms citizens and governments should keep in mind when thinking about income and wealth redistribution through taxation at the local level. Click here for the video.
This multi-disciplinary conference is sponsored by the Max Planck Institute for Tax Law and Public Finance, the Norwegian Centre for Taxation, and the University of Notre Dame. Notre Dame funding is provided by the Nanovic Institute for European Studies, Notre Dame International, and the Kellogg Institute for International Studies. Within this framework, I was invited to present my work “Income shifting as income creation? The intensive vs. extensive” (joint with Håkan Selin from IFAU, Sweden).