Redistribution and labour supply

Abstract

This paper explores the effect of personal income taxes on redistribution when labour supply reactions are taken into consideration. We find that classical non-behavioural results on redistribution are not necessarily satisfied in a more general behavioural framework. In this respect, we show that the relevant transition for measuring redistribution is not the transition from the initial post-tax to the final post-tax income distribution but the one from the more precise initial pre-tax to the final post-tax income distribution. In addition, we postulate necessary and sufficient conditions to ensure redistribution in this wider setting. We also find that the functional specification of the labour supply may condition final results.