Discontinuous transfer policies with a given Lorenz curve

Journal of Mathematical Finance, 2016

Journal of Statistical and Econometric Methods, 2013

Theoretical Economics Letters, 2012

Bulletin of Economic Research, 1991

Theoretical Economics Letters, 2016

2015

The transfer problem refers to the possibility that a donor country could end up better off after giving away some resources to another country. The simplest ver-sion of that problem can be formulated in a two consumer exchange economy with fixed total resources. The existence of a transfer problem at some equilibrium is known to be equivalent to instability in the case of two goods. This character-ization is extended to an arbitrary number of goods by showing that a transfer problem exists at a (regular) equilibrium if and only if this equilibrium has an in-dex value equal to −1. Samuelson’s conjecture that there is no transfer problem at tatonnement stable equilibria is therefore true for any number of goods.

International Finance Discussion Paper

We study the optimal design of means-tested transfers and progressive income taxes. In a simple analytical model, we demonstrate an optimally negative relation between transfers and income-tax progressivity due to efficiency and redistribution concerns. In a rich dynamic model, we quantify the optimal plan with flexible tax-and-transfer functions. Transfers should be larger than currently in the U.S. and financed with moderate income-tax progressivity. Transfers are key to implement higher progressivity in average than in marginal tax-and-transfer rates, achieving redistribution while preserving efficiency. Quantitatively, the left tail of the income distribution determines optimal transfers, whereas the right tail determines income-tax progressivity.