TY  - JOUR
AU  - Hoff,Karla
AU  - Lyon,Andrew B.
TI  - Non-Leaky Buckets: Optimal Redistributive Taxation and Agency Costs
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4652
PY  - 1994
Y2  - February 1994
UR  - http://www.nber.org/papers/w4652
L1  - http://www.nber.org/papers/w4652.pdf
N1  - Author contact info:
Karla Hoff
World Bank
MC 3-301
1818 H St NW
Washington DC 20433
Tel: 240 413 2758
E-Mail: khoff@worldbank.org

Andrew B. Lyon
PricewaterhouseCoopers LLP
1301 K Street, NW  Suite 800W
Washington, DC 20005
Tel: 202-414-3865
E-Mail: drew.lyon@us.pwc.com
AB  - Economists have generally argued that income redistribution comes at a cost in aggregate incomes.  We provide a counter-example in a model where private information gives rise to incentive constraints. In the model, a wage tax creates the usual distortion in labor-leisure choices, but the grants that it finances reduce a distortion in investment in human capital.  We prove that simple redistributive policies can yield Pareto improvements and increase aggregate incomes. Where higher education is beyond the reach of the poor, the wage tax- transfer policy is under most circumstances more effective than targeted credit taxes or subsidies in increasing over-all efficiency.
ER  -