NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Redistributive Taxation in the Roy Model

Casey Rothschild, Florian Scheuer

NBER Working Paper No. 18228
Issued in July 2012
NBER Program(s):   EFG   LS   PE

We consider optimal redistribution in a model where individuals can self-select into one of several possible sectors based on heterogeneity in a multidimensional skill vector. We first show that when the government does not observe the sectoral choice or underlying skills of its citizens, the constrained Pareto frontier can be implemented with a single non-linear income tax. We then characterize this optimal tax schedule. If sectoral inputs are complements, a many-sector model with self-selection leads to optimal income taxes that are less progressive than the corresponding taxes in a standard single-sector model under natural conditions. However, they are more progressive than in canonical multi-sector economies with discrete types and without occupational choice or overlapping sectoral wage distributions.

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This paper was revised on June 17, 2013

Acknowledgments

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Published: Casey Rothschild, 2013. "Redistributive Taxation in the Roy Model," The Quarterly Journal of Economics, Oxford University Press, vol. 128(2), pages 623-668.

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