Fair and efficient taxation under partial control

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URL:	https://ub-madoc.bib.uni-mannheim.de/35457
URN:	urn:nbn:de:bsz:180-madoc-354576
Document Type:	Working paper
Year of publication:	2014
The title of a journal, publication series:	ZEW Discussion Papers
Volume:	14-002
Place of publication:	Mannheim
Publication language:	English
Institution:	Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series:	Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject:	330 Economics
Classification:	JEL: D6 , H2 , I3,
Keywords (English):	Fairness , redistribution , taxation , tagging , equality of opportunity
Abstract:	We study fair and efficient tax-benefit schemes based on income and non-income factors under partial control. Partial control means that each factor is a specific mixture of unobserved ability (randomly drawn by nature) and effort (chosen by individuals who differ in tastes). Factors differ in the degree of control, ranging from no control (if only ability matters) to full control (if only effort matters). Fairness requires to compensate individuals for differences in well-being caused by differences in abilities, while at the same time preserving well-being differences caused by taste differences. We discuss first the general properties of fair and efficient tax-benefit schemes. Next, we study two special cases - income taxation and tagging - in detail. Finally, we derive testable conditions for the general case and discuss the empirical implementation.