eCommons

 

Understanding the Evolution of Inequality During Transition: The Optimal Income Taxation

Other Titles

Abstract

What explains the spectacular increases in inequality of disposable income in transitional economies of Central and Eastern Europe? There are at least two possible explanations. First, the pre-tax distribution of income became more unequal because of the shift to a market economy. Second, the degree of progressivity of the income tax system declined. But each of these factors is in turn determined by other structural changes associated with transition-notably, the decrease in public provision of key public goods, the decrease in non income tax revenue sources such as profits from public production, and perhaps a decline in society's inequality aversion. This paper develops a framework in which these different forces on inequality can be assessed. Using a simple two-type and two-sector optimal income tax model with endogenous wages, we first of all show that a decrease in the provision of public goods could indeed lead to increasing inherent inequality, in other words inequality in market incomes. It then deploys the Mirrlees model of optimal non- linear taxation to assess the relative impacts of this increase in inherent inequality, the decreasing sources of non income tax revenue, and possible declines in inequality aversion; to get a numerical feel for their possible impacts on inequality.

Journal / Series

Volume & Issue

Description

WP 2002-10 April 2002

Sponsorship

Date Issued

2002-04

Publisher

Charles H. Dyson School of Applied Economics and Management, Cornell University

Keywords

Location

Effective Date

Expiration Date

Sector

Employer

Union

Union Local

NAICS

Number of Workers

Committee Chair

Committee Co-Chair

Committee Member

Degree Discipline

Degree Name

Degree Level

Related Version

Related DOI

Related To

Related Part

Based on Related Item

Has Other Format(s)

Part of Related Item

Related To

Related Publication(s)

Link(s) to Related Publication(s)

References

Link(s) to Reference(s)

Previously Published As

Government Document

ISBN

ISMN

ISSN

Other Identifiers

Rights

Rights URI

Types

article

Accessibility Feature

Accessibility Hazard

Accessibility Summary

Link(s) to Catalog Record