| Sumario: | The writers propose a new fair allocation, labeled a “Pareto-efficient and shared resources equivalent” allocation. They explain that, as the name implies, the optimal allocation is Pareto-efficient and all individuals are indifferent between their bundle and what they would receive if it were physically possible to divide or share all resources. They examine a discrete Stiglitz economy with four types—defined by a low or high productive skill and low or high taste for working—and a government that seeks to introduce fair taxes but cannot see individuals' type. They demonstrate that a fair system would subsidize low earners, as long as low-skilled individuals have a strictly positive skill. Using a sample of Belgian singles, they also suggest that negative marginal tax rates, and therefore “making work pay” policies, are not optimal in a reasonable case where at least some unemployed people are willing to work but are prevented by exogenous labor market constraints.
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