Poverty alleviation in a welfarist framework of optimal linear income taxation

This paper develops a framework that allows to treat the typically ”non welfarist” goal of poverty alleviation as a ”welfarist” one. Such result is obtained by adopting a censored social welfare function, in which only variations in incomes below the poverty line affect social welfare. Optimal linear income tax structures derived assuming different social objective functions are then explicitly compared. Under quite general conditions, we show that the poverty-minimising income taxation is more redistributive than the standard welfare-maximising one. Under more restrictive assumptions on the income distribution, however, we find that the opposite result may occur. Specifically, when the poor are close enough to the poverty line, a smaller redistribution may be required to minimise poverty rather than maximise welfare.