Erwin Ooghe

Optimal Tax-benefit Scheme

During his research visit, Erwin Ooghe will follow up on an earlier research project with Andreas Peichl. The idea is to bring together the inverse optimal tax literature and the fairness literature. The inverse optimal income tax literature assumes that the actual tax-benefit scheme in a country is optimally set by a planner. Inversion of the resulting optimal tax formula allows for a deduction of some of the underlying parameters of interest, e.g., the implicit marginal social welfare weights (as a function of earnings). The fairness literature introduces responsibility in welfare economics based on a cut between circumstances (factors for which an individual is not held responsible) and ambitions (factors for which an individual is held responsible). Fairness requires that only differences in outcomes caused by differences in circumstances should be compensated; differences in outcomes caused by differences in ambitions should be preserved as much as possible.

Combining both literatures, Erwin Ooghe and Adreas Peichl assume that society chooses an optimal tax-benefit scheme, where optimal should be interpreted as both efficient and fair. Fair corresponds to an opportunity egalitarian viewpoint with a twist. Individuals can be partially responsible – in between the extremes of not responsible and fully responsible – for factors that determine the outcome of interest; see Ooghe and Peichl (2014) and Ooghe (2015)¹. The plan is to invert such a fair and efficient tax formula and apply it to tax-benefit schemes in Europe and the United States to estimate the implicit degree of compensation for the different factors that determine individual well-being.

Erwin Ooghe is currently Full Professor at the Department of Economics, KU Leuven (Belgium). His research interests are public economics, especially the economics of taxation and education, and normative welfare economics. At KU Leuven he leads the research group in Public Economics. He is also affiliated to LEER, Leuven, and is also a ZEW Research Associate. He holds a PhD in Economics as well as a Master of Advanced Studies in Economics and a Master of Business Engineering.

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¹Ooghe, E., and Peichl, A., 2014, Fair and efficient taxation under partial control, Economic Journal 125, 2024-2051. Ooghe, E., 2015, Partial compensation/responsibility, Theory and Decision 78, 305-317.