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Optimality conditions and comparative static properties of non-linear income taxes revisited

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  • Laurent Simula

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, GREMAQ - Groupe de recherche en économie mathématique et quantitative - CNRS : UMR5604 - Université des Sciences Sociales - Toulouse I - École des Hautes Études en Sciences Sociales (EHESS) - Institut national de la recherche agronomique (INRA) : UMR, IDEP - Institut d'économie publique - IDEP)

Abstract

Optimality conditions and comparative static properties of the optimal Mirrleesian nonlinear income tax are obtained for a finite population and quasilinear-in-consumption preferences. Contrary to Weymark (1987) who considers quasilinear-in-leisure preferences, the linearity with respect to gross income, which is observed by the government and used as a tax base, is lost. A reduced-form optimal income tax problem is derived, in which consumption levels are obtained as functions of gross incomes. The contribution of this new reduced form is twofold. First, the optimal allocation can be characterized geometrically in a simple way. Second, comparative static results with respect to individual productivities are easy to obtain.

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Bibliographic Info

Paper provided by HAL in its series PSE Working Papers with number halshs-00588074.

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Date of creation: May 2007
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Handle: RePEc:hal:psewpa:halshs-00588074

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Keywords: optimal tax ; income tax ; comparative statics;

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Cited by:
  1. Brett, Craig & Weymark, John A., 2008. "The impact of changing skill levels on optimal nonlinear income taxes," Journal of Public Economics, Elsevier, vol. 92(7), pages 1765-1771, July.
  2. Brett, Craig, 2008. "The effects of population aging on optimal redistributive taxes in an overlapping generations model," MPRA Paper 8585, University Library of Munich, Germany.
  3. Krause, Alan, 2009. "Optimal nonlinear income taxation with learning-by-doing," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1098-1110, October.
  4. Alan Krause, 2008. "Optimal Nonlinear Income Taxation with Learning-by-Doing," Discussion Papers 08/08, Department of Economics, University of York.
  5. Leung, Tin Cheuk & Yazici, Hakki, 2011. "On the Optimal Skill Distribution in a Mirrleesian Economy," MPRA Paper 32596, University Library of Munich, Germany.
  6. Craig Brett & John Weymark, 2008. "Optimal Nonlinear Taxation of Income and Savings without Commitment," Vanderbilt University Department of Economics Working Papers 0805, Vanderbilt University Department of Economics.

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