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This paper examines public good provision and tax policy ­ optimal non-linear income taxation and linear commodity taxation ­ when the government departs from purely welfarist objective function and seeks to minimise poverty. This assumption reflects much policy discussion and may help understand some divergences of practical tax policy from lessons in optimal tax analysis. In contrast to Atkinson and Stiglitz (1976), it may be optimal to use differentiated commodity tax rates, including the taxation of savings, even if preferences are separable in goods and leisure. The optimal effective marginal tax rate at the bottom of the distribution may be negative, suggesting that wage subsidy schemes can be optimal. Finally, optimal provision rules are derived for a public good under poverty minimisation.

This paper examines optimal non-linear income taxation, commodity taxation and public good provision under income uncertainty. Workers' income depends randomly on their effort, and effort is unobservable to the government. When income is taxed on a non-linear scale and commodities linearly, the consumption of commodities that are negatively (positively) associated with effort should be discouraged (encouraged). A similar rule is derived for public good provision. Conditions for when uniform commodity taxation and the first-best Samuelson rule for public good provision are desirable under income uncertainty are shown to be analogous to those derived in the conventional tax model. The paper also examines rules for optimal non-linear income and commodity taxation under income uncertainty.

We analyse the decision rules governing public employment policy and capital allocation between private and public sector in a simple two-type and two-sector optimal non-linear income tax model with endogenous wages. Results from a static framework indicate that to produce a given amount of consumption the government should employ more unskilled workers and less skilled workers than is necessary to minimize cost at the prevailing gross wage rate. The potential role of minimum wage as another policy variable is discussed as well. Extending the model into an OLG framework with public and private capital, we show that the discount rate that ought to be used in evaluating public sector projects is not the same as the return to capital in the private sector. In particular, public capital accumulation is favoured if capital in the private sector is complementary with high-skilled labour. Therefore, production efficiency holds neither in public employment decision nor capital allocation.

Using a novel data set from post-communist countries in the 1990s, this paper examines linkages between political constraints, economic reforms and growth.A dynamic panel analysis suggests public support for reform is negatively associated with income inequality and unemployment.Both the ex post and ex ante political constraints of public support affect progress in economic reform, which in turn influences economic growth.The findings highlight that while economic reforms are needed to foster growth, they must be designed so that they do not undermine political support for reform.

This paper examines the impact of the introduction of the value-added tax on inequality and government revenues using newly released macro data. We present both conventional country fixed effect regressions and instrumental variable analyses, where VAT adoption is instrumented using the previous values of neighbouring countries' VAT systems as an instrument. The results reveal – in contrast to earlier work – that the revenue consequences of the VAT have not been positive. The results indicate that income-based inequality has increased due to the VAT adoption, whereas consumption inequality has remained unaffected. ; peerReviewed

This paper examines the impact of the introduction of the value-added tax on inequality and government revenues using newly released macro data. We present both conventional county fixed effect regressions and instrumental variable analyses, where VAT adoption is instrumented using the previous values of neighbouring countries VAT systems as an instrument. The results reveal – in contrast to earlier work – that the revenue consequences of the VAT have not been positive. The results indicate that income-based inequality has increased due to the VAT adoption, whereas consumption inequality has remained unaffected.