Accounting For Family Background When Designing Optimal Income Taxes: A Microeconometric Simulation Analysis

Date Added: Feb 2010
Format: PDF

This paper is to introduce and adopt a generalized version of Roemer's (1998) Equality of Opportunity (EOp) framework, which they call extended EOp, for analyzing second-best optimal income taxation. Unlike the pure EOp criterion of Roemer (1998) the extended EOp criterion allows for alternative weighting profiles in the treatment of income differentials between as well as within types when types are defined by circumstances that are beyond people's control. This paper uses parental education as a measure of exogenous circumstances. An empirical micro econometric model of labor supply in Italy is employed to simulate and identify income tax-transfer rules that are optimal according to the extended EOp criterion.