Differential taxation and occupational choice Renato Gomes, Jean - Maríe Lozachmeur, Alessandro Pavan
By: Gomes, Renato
.
Contributor(s): Lozachmeur, Jean Marie | Pavan, Pietro.
Material type: 
ArticlePublisher: 2018Subject(s): RENTA | IMPUESTOS | PROFESIONES | IMPOSICION OPTIMAOnline resources: Click here to access online
In:
The Review of Economic StudiesSummary: We develop a framework to study optimal sector-specific taxation, where each agent chooses an occupation by comparing her skill differential with the tax burden differential across sectors. Because skills are not perfectly transferable, the Diamond–Mirrlees theorem (according to which the second-best
entails production efficiency) fails: social welfare can be increased by inducing some agents to join the sector in which their productivity is not the highest. At the optimum, income taxes balance the marginal losses from inter-sector migration with the marginal gains from tailoring tax schedules to the distribution of productivities in each sector (“tagging”). A calibrated model indicates that sector-specific taxation
generates substantive welfare gains when skill transferability decreases with income, as it enables the government to increase average taxes on high earners with large wage premia.
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| Artículos | IEF | IEF | OP 558/2018/302-2 (Browse shelf) | Available | OP 558/2018/302-2 |
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| OP 558/2017/300-2 Intergenerational disagreement and optimal taxation of parental transfers | OP 558/2017/301 Runs versus Lemons | OP 558/2018/302-1 Housing market responses to transaction taxes | OP 558/2018/302-2 Differential taxation and occupational choice | OP 558/2018/303 The Review of Economic Studies | OP 558/2018/304 The Review of Economic Studies | OP 558/2018/305 The Review of Economic Studies |
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We develop a framework to study optimal sector-specific taxation, where each agent chooses an occupation by comparing her skill differential with the tax burden differential across sectors. Because skills are not perfectly transferable, the Diamond–Mirrlees theorem (according to which the second-best
entails production efficiency) fails: social welfare can be increased by inducing some agents to join the sector in which their productivity is not the highest. At the optimum, income taxes balance the marginal losses from inter-sector migration with the marginal gains from tailoring tax schedules to the distribution of productivities in each sector (“tagging”). A calibrated model indicates that sector-specific taxation
generates substantive welfare gains when skill transferability decreases with income, as it enables the government to increase average taxes on high earners with large wage premia.
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