OPTIMAL CATEGORICAL TRANSFER PAYMENTS: THE WELFARE ECONOMICS OF LIMITED LUMP-SUM REDISTRIBUTION A central component of most countries' tax-transfer systems
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چکیده
Most actual tax-transfer systems include categorical transfer payments, based on(nearly) exogenous characteristics such as disability or date of birth. In this paper, I note thatoptimal categorical transfers are a form of limited lump-sum redistribution and analyze optimalcategorical transfers in relation to the theory of first-best lump-sum redistribution. I examine theeffects of optimal categorical transfers on the optimal income tax rate and on the labor supply andutility of different groups, and I analyze comparative statics with respect to the planner's inequalityaversion. I am grateful to Thomas A. Barthold, Stephen G. Cecchetti, Gene E. Mumy, Victor Brian Viard,and seminar participants at Ohio State University, Vanderbilt University, and IndianaUniversity/Purdue University at Indianapolis for helpful comments. * 410 Arps Hall, 1945 N. High Street, Columbus, OH 43210 USA, phone (614) 292-4192,fax (614) 292-3906, [email protected]
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