Despite the fact that all developed economies levy broadly-based indirect taxes alongside direct taxes, little theory is devoted to explaining the direct-indirect tax mix. Our purpose is to show that if different taxes have different evasion characteristics, some optimal tax mix emerges...

This paper studies optimal linear income taxation and redistributive social insurance when the former has the traditional labor distortion and the latter generates both ex ante and ex post moral hazard. Private insurance is available and individuals differ in labor productivity and in loss...

Governments typically used expenditures extensively as redistributive devices. Examples include the public provision of health, education, welfare, and public pensions. The purpose of this paper is to investigate the normative rationale for such policies. In particular, we study the role of...

Time inconsistency of tax policy is shown to arise in a setting in which households differ in their ability to accumulate wealth and the government has redistributional objectives. The government can levy non-distorting taxes but is precluded from redistributing optimally by a self-selection...

With quasi-linear in leisure preferences, closed-form solutions for the marginal tax rates and the marginal utility of consumption under utilitarian and maxi-min objectives depend only on the skill distribution. Bunching induced by binding second-order incentive conditions also depends only on...

An overlapping generations models is constructed in which individual wealth is related to educational attainment, and in which liquidity constraints may induce children to invest in a sub-optimal level of education given their ability. Borrowing for educational attainment is obtained from within...

The Atkinson-Stiglitz Theorem states that if labor is weakly separable from goods in household utility functions, differential commodity taxation should not be not part of an optimal redistributive tax system. This Theorem, which is arguable the most policy-relevant result to come out of the...

We study the optimal redistributive tax structure when the population can be disaggregated into tagged groups. We begin with the case in which the tag has no normative significance, but simply separates the population into identifiable groups with different distributions of ability-types. Under...

We propose mechanism for implementing a two-stage harmonized Basic Income Guarantee with federal and provincial components. In Stage One, the federal government replaces its refundable and nonrefundable tax credits with an income-tested basic income delivered through the income tax system. The...

It is well-known that cash-flow business taxes with full loss-offset, and their present-value equivalents, are neutral with respect to firms' investment decisions when firms are riskneutral and there are no distortions. We study the effects of cash-flow business taxation when there is bankruptcy...