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 InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 409.
Length: 18 p.
Date of creation: 2004
Date of revision:
Optimal taxation; Tax deductions; Work-related expenditures;
Other versions of this item:
- Pio Baake & Rainald Borck & Andreas L–ffler, 2004. "Complexity and Progressivity in Income Tax Design: Deductions for Work-Related Expenses," International Tax and Public Finance, Springer, vol. 11(3), pages 299-312, 05.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-03-14 (All new papers)
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