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Complexity and Progressivity in Income Tax Design: Deductions for Work-Related Expenses

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  • Pio Baake

    ()

  • Rainald Borck

    ()

  • Andreas L–ffler

    ()

Abstract

We 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 Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 11 (2004)
Issue (Month): 3 (05)
Pages: 299-312

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Handle: RePEc:kap:itaxpf:v:11:y:2004:i:3:p:299-312

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Web page: http://www.springerlink.com/link.asp?id=102915

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  1. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  2. Cooter, Robert D, 1978. "Optimal Tax Schedules and Rates: Mirrlees and Ramsey," American Economic Review, American Economic Association, vol. 68(5), pages 756-68, December.
  3. Mirrlees, J. A., 1976. "Optimal tax theory : A synthesis," Journal of Public Economics, Elsevier, vol. 6(4), pages 327-358, November.
  4. Ebert, Udo, 1992. "A reexamination of the optimal nonlinear income tax," Journal of Public Economics, Elsevier, vol. 49(1), pages 47-73, October.
  5. Louis Kaplow, 1989. "Optimal Taxation with Costly Enforcement and Evasion," NBER Working Papers 2996, National Bureau of Economic Research, Inc.
  6. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
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Cited by:
  1. Homburg, Stefan, 2008. "Die Entfernungspauschale als steuertheoretische Herausforderung," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 45-53.
  2. Wolfram F. Richter, 2004. "Efficiency Effects of Tax Deductions for Work-Related Expenses," CESifo Working Paper Series 1311, CESifo Group Munich.

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