Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/296147 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11058
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Surveys and experiments suggest that people hold workers more responsible for income gains stemming from merit, such as education, than circumstances, such as parental education. This paper shows how to design income taxes that account for merits. First, we introduce social welfare functions that accommodate individual preferences and hold workers responsible for their merits. Second, we show how to map social welfare function primitives into empirically measurable statistics and exploit long-run Norwegian income and family relations register data to examine the relationship between merit and income. Third, we simulate optimal income tax implications of our meritocratic social welfare functions. The result is that accounting for merit leads to lower optimal marginal income tax rates than the utilitarian criterion recommends, but the difference is smaller when workers are not held responsible for merits that are explained by circumstances.
Subjects: 
equality of opportunity
meritocracy
optimal income taxation
welfare criteria
JEL: 
D31
D63
H21
Document Type: 
Working Paper
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