An Optimal Shape of Income Tax: Evidence from Zero Income Tax Countries - Paraguay & Uruguay
AbstractMost of the existing literature on the optimal shape of income tax has a common result - decreasing marginal tax rates. This result stands in sharp contrast with real world income tax systems that are characterized by increasing marginal tax rates. Diamond (1998) made explicit the factors that affect the optimal shape of income tax rates. A special attention was given to one of the effects: the distribution effect. The main goal of this paper is to empirically explore whether the 'distribution effect' implies rising or declining marginal income tax rates with special interest at high levels of income. We estimate the hourly wage distribution as a proxy for the distribution of skills. We show that the desired income tax schedule implied by the 'distribution effect' should exhibit increasing marginal tax rates at high levels of income. The analysis is based on data from zero income tax countries - Paraguay and Uruguay. We use a nonparametric estimation technique to avoid using any functional form assumptions on the skill distribution.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 03-05.
Date of creation: 2003
Date of revision:
Contact details of provider:
Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
Phone: (919) 660-1800
Fax: (919) 684-8974
Web page: http://econ.duke.edu/
Find related papers by JEL classification:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-04-27 (All new papers)
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Department of Economics Webmaster).
If references are entirely missing, you can add them using this form.