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Discussion Paper Details

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Title: Pareto-improving tax reforms and the Earned Income Tax Credit

Author(s): Felix Bierbrauer, Pierre Boyer and Emanuel Hansen

Publication Date: June 2020

Keyword(s): Earned Income Tax Credit, Non-linear income taxation, optimal taxation and Tax Reforms

Programme Area(s): Public Economics

Abstract: This paper provides necessary and suffcient conditions for the existence of Pareto-improving tax reforms. The conditions can be expressed as suffcient statistics and have a wide range of potential applications in public finance. We discuss one such application in detail: the introduction of the Earned Income Tax Credit (EITC) in the US. We find that the EITC can be viewed as a response to an inefficiency in the tax and transfer system prevailing at the time. This adds a new perspective to the literature on why the EITC is a good idea, emphasizing Pareto improvements rather than equity-efficiency trade-offs.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14853

Bibliographic Reference

Bierbrauer, F, Boyer, P and Hansen, E. 2020. 'Pareto-improving tax reforms and the Earned Income Tax Credit'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14853