Abstract
Survey and experimental evidence have shown that people hold workers more responsible for wage gains stemming from factors that partly indicate merit, such as educational attainments, than other factors, such as parental income. This paper shows how to set redistributive income taxes that account for workers’ merits. First, we develop meritocratic social welfare functions that accommodate individual preferences and hold workers responsible for the part of their wage stemming from merit. Second, we show how to map primitives of these social welfare functions into empirically measurable statistics and exploit long-run comprehensive Norwegian income and family relations data to provide evidence on the relationship between merit and wages. Third, we simulate linear and non-linear optimal income tax implications of the meritocratic social welfare functions, given our measurement of the role of merits. The result is that accounting for merit implies lower optimal marginal income tax rates than the utilitarian criterion recommends. However, the difference is smaller when workers are not held responsible for merits explained by circumstances.
The seminar will be held in room 1249 (12th floor) at Eilert Sundts Hus. The address is Moltke Moes vei 31.