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Are Two Tax Rates Better than One?

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Author Info
FitzRoy, Felix () (University of St. Andrews)
Jin, Jim () (University of St. Andrews)
Abstract

Should two-band income taxes be progressive given a general income distribution? We provide a negative answer under utilitarian and max-min welfare functions. While this result clarifies some ambiguities in the literature, it does not rule out progressive taxes in general. If we maximize total or weighted utility of the poor, as often intended by the society, progressive taxes can be justified, especially when the 'rich' are very rich. Under these objectives we obtain necessary conditions for progressive taxes, which only depend on aggregate features of income distributions. The validity of these conditions is examined using plausible income distributions.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4167.

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Length: 33 pages
Date of creation: May 2009
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Handle: RePEc:iza:izadps:dp4167

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Related research
Keywords: progressive tax; utilitarian; max-min; help the poor;

Find related papers by JEL classification:
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
D40 - Microeconomics - - Market Structure and Pricing - - - General

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This page was last updated on 2009-12-7.

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