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Capital Income Taxation and the Mirrlees Review

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  • Apps, Patricia

    ()
    (University of Sydney)

  • Rees, Ray

    ()
    (University of Munich)

Abstract

The Mirrlees Review of the UK tax system, together with its companion volume of research papers, can be expected to influence future discussions of tax reform. Indeed, this can already be recognised in the Henry Review. As far as income taxation is concerned, the most substantive recommendation of the Mirrlees Review is a move toward a system of consumption or expenditure taxation, by exempting the "normal return" to saving and taxing only "excess returns" on the same tax schedule as labour earnings. This paper argues against this direction of reform on the grounds that it is based on a model of household behaviour over the life cycle that ignores important aspects of reality. We present an alternative model, together with supporting empirical evidence. We go on to argue that, against the background of rising inequality and an aging population, the appropriate direction for reform is towards more progressive taxation of both labour earnings and capital income, although not necessarily under the same rate scale.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6615.

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Length: 26 pages
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6615

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Related research

Keywords: optimal taxation; labour supply; capital income taxation; family life cycle; time allocation; saving; inequality;

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  1. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2007. "Gender Based Taxation and the Division of Family Chores," NBER Working Papers 13638, National Bureau of Economic Research, Inc.
  2. Kenneth L. Judd, 1982. "Redistributive Taxation in a Simple Perfect Foresight Model," Discussion Papers 572, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Michael J. Boskin & Eytan Sheshinski, 1979. "Optimal Tax Treatment of the Family: Married Couples," NBER Working Papers 0368, National Bureau of Economic Research, Inc.
  4. Apps,Patricia & Rees,Ray, 2009. "Public Economics and the Household," Cambridge Books, Cambridge University Press, number 9780521716284, Fall.
  5. Patricia Apps & Ray Rees, 2014. "Optimal Taxation, Child Care and Models of the Household," CESifo Working Paper Series 4578, CESifo Group Munich.
  6. Peter Sørensen, 2005. "Neutral Taxation of Shareholder Income," International Tax and Public Finance, Springer, vol. 12(6), pages 777-801, November.
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