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Optimal Marginal Tax Rates for Low Incomes: Positive, Negative, or Zero?

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Author Info
Homburg, Stefan

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Abstract

Previous studies have shown that the optimal marginal tax rate at the bottom of the income distribution may be positive, negative, or even zero. This paper reexamines this problem in a unified framework and tries to evaluate the arguments. It turns out that the case for positive marginal tax rates is quite strong, whereas negative marginal tax rates seem to be based on a misconception.

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Publisher Info
Paper provided by Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover with number dp-255.

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Length: 15 pages
Date of creation: May 2002
Date of revision:
Handle: RePEc:han:dpaper:dp-255

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Related research
Keywords: Optimal income taxation; contract theory; incentives; welfare;

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Find related papers by JEL classification:
H2 - Public Economics - - Taxation, Subsidies, and Revenue
D3 - Microeconomics - - Distribution

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. V. Joseph Hotz & John Karl Scholz, 2001. "The Earned Income Tax Credit," NBER Working Papers 8078, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Seade, Jesus, 1982. "On the Sign of the Optimum Marginal Income Tax," Review of Economic Studies, Blackwell Publishing, vol. 49(4), pages 637-43, October. [Downloadable!] (restricted)
  3. Homburg, Stefan, 2002. "The Optimal Income Tax: Restatement and Extensions," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-252, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
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  4. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, vol. 13(1), pages 101-110, February. [Downloadable!] (restricted)
  5. Kanbur, Ravi & Tuomala, Matti, 1994. " Inherent Inequality and the Optimal Graduation of Marginal Tax Rates," Scandinavian Journal of Economics, Blackwell Publishing, vol. 96(2), pages 275-82.
  6. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Blackwell Publishing, vol. 38(114), pages 175-208, April. [Downloadable!] (restricted)
  7. Guesnerie, Roger & Seade, Jesus, 1982. "Nonlinear pricing in a finite economy," Journal of Public Economics, Elsevier, vol. 17(2), pages 157-179, March. [Downloadable!] (restricted)
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  8. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March. [Downloadable!] (restricted)
    Other versions:
  9. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sebastian G. Kessing & Kai A. Konrad, 2005. "Union Strategy and Optimal Income Taxation," IZA Discussion Papers 1545, Institute for the Study of Labor (IZA). [Downloadable!]
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