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Taxation and tournaments

Sandmo, Agnar; Persson, Mats
Working paper
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URI
http://hdl.handle.net/11250/162898
Date
2002-05
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  • Discussion papers (SAM) [604]
Abstract
This paper analyzes the effects of progressive taxes on labour supply and income

distribution in the context of the rank-order tournament model originally developed

by Lazear and Rosen (1981). We show conditions under which a more progressive tax

schedule will cause so large general equilibrium effects that the inequality in

disposable income will actually increase. We also show that a non-zero redistributive

tax is always optimal if society’s welfare function displays inequality aversion; this

result always holds, regardless of behavioral responses and general equilibrium effects.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2002:10

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