TY  - RPRT
        AU  - Jacquet, Laurence
AU  - Lehmann, Etienne
AU  - Linden, Bruno Van der
        TI  - Optimal Redistributive Taxation with Both Extensive and Intensive Responses
        PY  - 2010/Mar/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 4837
        UR  - https://www.iza.org/publications/dp4837
        AB  - This paper characterizes optimal income taxation when individuals respond along both the intensive and extensive margins. Individuals are heterogeneous across two dimensions: specifically, their skill and disutility of participation. Preferences over consumption and work effort can differ with respect to the level of skill, with only the Spence-Mirrlees condition imposed. Employing a tax perturbation approach, we derive an optimal tax formula that generalizes previous results by allowing for income effects and extensive margin responses. We provide a sufficient condition for optimal marginal tax rates to be nonnegative everywhere. We discuss the relevance of this condition with analytical examples and numerical simulations using U.S. data.
        KW  - optimal tax formula
KW  - tax perturbation
KW  - random participation
        ER  -