A Fair Day’s Pay for a Fair Day’s Work: Optimal Tax Design as Redistributional Arbitrage

Speaker: Nicolas Werquin

Affiliation: Federal Reserve Bank of Chicago

Online via Zoom: https://uqz.zoom.us/j/87038096161

Abstract

We study optimal tax design based on the idea that policy-makers face trade-offs between multiple margins of redistribution. Within a Mirrleesian economy with earnings, consumption and retirement savings, we derive a novel formula for optimal income and savings distortions based on redistributional arbitrage. We establish a sufficient statistics representation of the labor income and capital tax rates on top income earners in dynamic environments, which relies on the observed distributions of both income and consumption. Because consumption has a thinner Pareto tail than income, our quantitative results suggest that it is optimal to shift a substantial fraction of the top earners' tax burden from income to savings.

About the presenter's meeting

If you would like to meet with Nicolas Werquin, please email Dr Antonio Bellofatto