On the Optimal Design of Taxes and Transfers

Macroeconomics Seminar

Add to calendar 2021-10-22 11:00 2021-10-22 12:15 Europe/Rome On the Optimal Design of Taxes and Transfers Seminar Room 3rd Floor Villa La Fonte YYYY-MM-DD


22 October 2021

11:00 - 12:15 Italian time


Seminar Room 3rd Floor

Villa La Fonte

In this seminar Professor Axelle Ferrière will present the paper "Larger Transfers Financed with More Progressive Taxes? On the Optimal Design of Taxes and Transfers."

The U.S. fiscal system redistributes through a rich set of taxes and transfers, the latter accounting for a large part of the income of the poor. Motivated by this, we study the optimal joint design of transfers and income taxes. Within a simple heterogeneous-household framework, we derive two analytical results. First, higher transfers reduce the optimal income tax progressivity. Second, optimal transfers are positive. Redistribution is achieved with generous transfers while efficiency is preserved via a lower progressivity of income taxes. As such, the optimal tax-and-transfer system features larger progressivity of average than of marginal tax rates. We then quantify the optimal tax-and-transfer system in a rich incomplete-market model with realistic distributions of income, wealth, and income risk. The model features a novel flexible functional form for progressive income taxes and means-tested transfers. Relative to the current U.S. fiscal system, the optimal policy consists of more generous means-tested transfers, which phase-out at a slower rate, together with less progressive income taxes.

Co-authors: Philipp Grübener, Gaston Navarro, and Oliko Vardishvili

Due to limited spaces for COVID restrictions, participation on site will be allowed on a first-come, first-served basis. The event will also be live-streamed via zoom. Participants will receive the zoom link once registered.



Prof. Axelle Ferrière (Paris School of Economics)

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