| By: |
Ravi Kanbur;
Jukka Pirttilä;
Matti Tuomala;
Tuuli Ylinen |
| Abstract: |
The existing literature on optimal taxation typically assumes there exists a
capacity to implement complex tax schemes, which is not necessarily the case
for many developing countries. We examine the determinants of optimal
redistributive policies in the context of a developing country that can only
implement linear tax policies due to administrative reasons. Further, the
reduction of poverty is typically the expressed goal of such countries, and
this feature is also taken into account in our model. We derive the optimality
conditions for linear income taxation, commodity taxation, and public
provision of private and public goods for the poverty minimization case, and
compare the results to those derived under a general welfarist objective
function. We also study the implications of informality on optimal
redistributive policies for such countries, and comment on the potential for
minimum wage regulation. The exercise reveals nontrivial differences in
optimal tax rules under the different assumptions. The derived formulae also
capture the sufficient statistics that the governments need to pay attention
to when designing poverty alleviation policies. |
| Keywords: |
redistribution, income taxation, commodity taxation, public good provision, poverty Creation-Date: 2015; Economic growth, Investments, Panel analysis, Productivity |
| URL: |
http://d.repec.org/n?u=RePEc:unu:wpaper:wp2015-054&r=iue |