Abstract:
Economic disruptions generally create winners and losers. The compensation problem consists of designing a reform of the existing income tax system that offsets the welfare losses of the latter by redistributing the gains of the former. We derive a formula for the compensating tax reform and its impact on the government budget when only distortionary tax instruments are available and wages are determined endogenously in general equilibrium. We apply this result to the compensation of robotization in the U.S.
Subjects:
inequality
compensating variation
Kaldor-Hicks
distortionary taxes
general equilibrium
Equity, Justice, Inequality, and Other Normative Criteria and Measurement
Incidence
General Welfare, Well-Being