Complexity and Progressivity in Income Tax Design: Deductions for Work-Related Expenses
AbstractWe analyze optimal income taxes with deductions for work-related or consumptive goods. We consider two cases. In the first case (called a complex tax system) the tax authorities can exactly distinguish between consumptive and work-related expenditures. In the second case (called a simple tax system) this distinction is not exact. Assuming additively separable utility functions, we show that work-related expenditures should be fully deductible in the first case while deduction rates should be less than 100 percent in the second case. Under further simplifying assumptions, we also show that the simple system can be characterized by higher tax burdens on low income earners and less redistribution.
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Bibliographic InfoArticle provided by Springer in its journal International Tax and Public Finance.
Volume (Year): 11 (2004)
Issue (Month): 3 (05)
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Web page: http://www.springerlink.com/link.asp?id=102915
Other versions of this item:
- Pio Baake & Rainald Borck & Andreas Löffler, 2004. "Complexity and Progressivity in Income Tax Design: Deductions for Work-Related Expenses," Discussion Papers of DIW Berlin 409, DIW Berlin, German Institute for Economic Research.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
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