Some results on the comparative statics of optimal categorical transfer payments

To alleviate equity-efficiency trade-offs, tax transfer systems pay categor ical transfers to groups defined by characteristics correlated with earning s ability. The author examines the comparative statics of categorical trans fer payments in a linear income tax model through analysis of first-order c onditions and numerical calculations. The analysis sharpens previous result s on the size of categorical transfers, the resulting reduction in the inco me tax rate, and the associated welfare gain. Notably, the author finds tha t categorical transfers should vary more across groups when earnings abilit y is more equal within each group, when labor supply is more elastic, and w hen less revenue is required for public goods.