Well-Being, Poverty, and Labor Income Taxation: Theory and Application to Europe and the United States

Maniquet, François;Neumann, Dirk
(2021) American Economic Journal: Microeconomics — Vol. 13, n° 2, p. 276-310 (2021)

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In a model where agents differ in wages and preferences over labor time–consumption bundles, we study labor income tax schemes that alleviate poverty. To avoid conflict with individual well-being, we require redistribution to take place between agents on both sides of the poverty line provided they have the same labor time. This requirement is combined with efficiency and robustness prop- erties. Maximizing the resulting social preferences under incentive compatibility constraints yields the following evaluation criterion: tax schemes should minimize the labor time required to reach the poverty line. We apply this criterion to European countries and the United States.
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Maniquet, F., & Neumann, D. (2021). Well-Being, Poverty, and Labor Income Taxation: Theory and Application to Europe and the United States. American Economic Journal: Microeconomics, 13(2), 276-310. https://doi.org/10.1257/mic.20180269 (Original work published 2021)