Optimal Nonlinear Income Tax and Nonlinear Pricing: Optimality Conditions and Comparative Static Properties
AbstractUsing the Mirrlees optimal income tax model, with no income effects on labour supply, this article shows that the discrete population approach provides new insights into the characterization of the optimal tax system, which complements the previous findings. The analysis is based on the "Spence-Mirrlees wedge" which corresponds, at each observed gross income level, to a ratio between the marginal tax rate of the individual for whom the bundle is designed and that of his nearest more productive neighbour if he chooses to mimic. Using this wedge, a necessary and sufficient condition for bunching to be optimal is obtained in terms of the primitives of the model, separating optima are characterized geometrically, and comparative statics properties derived, notably with respect to skill levels and individual social weights. It is then shown that the analysis extends to adverse-selection problems where participation constraints replace the tax revenue constraint.
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Bibliographic InfoPaper provided by Uppsala University, Department of Economics in its series Working Paper Series, Center for Fiscal Studies with number 2009:11.
Length: 25 pages
Date of creation: 12 Oct 2009
Date of revision:
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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
More information through EDIRC
Optimal Tax; Income Tax; Nonlinear Pricing; Adverse-Selection; Comparative Statics;
Other versions of this item:
- Laurent Simula, 2010. "Optimal nonlinear income tax and nonlinear pricing: optimality conditions and comparative static properties," Social Choice and Welfare, Springer, vol. 35(2), pages 199-220, July.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
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