Thursday, January 31, 2008
This paper uses the tools of optimal tax theory to examine policy toward individuals with disabilities from a welfarist perspective. Policy toward the disabled depends on how a given disability affects welfare. Under reasonable assumptions, redistribution toward individuals with disabilities is desirable, but the extent and form depends on a variety of factors. If disabilities are observable, adjustments to the income tax schedule should be preferred. If disabilities are not observable, commodity taxes or in‐kind provision of certain goods (such as accommodations) may be desirable to solve screening problems. In this case, inefficient over‐supply of these goods is likely to be optimal. Finally, to the extent needs of the disabled are public goods, supply of such goods may be desirable (even if disabilities are observable).