When Kolm Meets Mirrless: ELIE

This article discusses the properties of Kolm’s ELIE proposal in the Context of optimal income taxation “à la Mirrlees”. It first shows that ELIE gives rise to non-standard type-dependent budget sets, which has important implications in terms of a minimum labour requirement. Second, it adopts the Mirrleesian framework to characterize ELIE as a first-best tax scheme and casts light on the very specific shape of the distribution of social weights that generate it. Third, it shows that ELIE is incentive compatible only when both gross income and time worked are verifiable, which seems to be a strong assumption for a non-negligible number of taxpayers.