A symphony of redistributive instruments

Samenvatting en conclusie

After an introductory chapter, the second chapter of this dissertation studies the optimal redistributive tax rates on labor income for the Netherlands. It shows that the current Dutch tax system redistributes too much to the middle-income, and too little to the poor workers. Chapter 3 uses optimal tax theory to elicit the preferences for redistribution of Dutch political parties. It shows that political opportunism leads political parties to overweight middle-income groups. Chapter 4 studies a duet between the labor income tax and a new instrument: monitoring of labor effort. It characterizes the optimal formula for the monitoring schedule as a function of income. The formula shows that the government should monitor those individuals that face a high marginal tax rate on labor income, and those with a high labor supply elasticity. Monitoring raises optimal tax rates, allowing governments to redistribute more income at lower costs. Chapter 5 studies the effect of capital income taxation on savings and portfolio composition. It finds that capital income taxation has a relatively small impact on household's investment behavior. The effect of capital taxation on portfolio composition and overall savings is small. This indicates that governments should tax capital income at higher rates to redistribute more income. Chapter 6 derives a formula for all redistributive instruments. It shows that the optimal tax/subsidy rate on each good can be evaluated by the cost and benefits associated to the redistribution. If a government wants to redistribute in several dimensions, it should also tax several goods. The final chapter discusses an important implicit assumption taken by public economists who study non-linear taxation, in order to simplify matters, in particular that choices are limited.