The Personal Income Tax Structure: Theory and Policy
AbstractThere is now a large and complex literature on optimal income taxation, within the context of second-best welfare economics. This paper considers the potential role of this analysis in the practical design of direct tax and transfer structures. It is stressed that few results are robust, even in simple models, in view of the important role played by alternative social welfare functions, the nature of the distribution of abilities and the preferences of individuals. In view of these negative results, it is suggested that a range of empirical tax analyses, capturing particular issues, can provide helpful guidance for policy analysts. Numerical illustrations are provided, paying attention to the role of a ‘top’ marginal tax rate applied to higher-income groups. In particular, behavioural microsimulation models can be used to examine marginal direct tax reform. Such models have the advantages of capturing the full extent of population heterogeneity and the complexity of the tax structure.
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Bibliographic InfoPaper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1063.
Length: 42 pages
Date of creation: 2009
Date of revision:
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Personal income Tax Structure;
Find related papers by JEL classification:
- B3 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals
- B30 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - General
- B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
- D3 - Microeconomics - - Distribution
- D30 - Microeconomics - - Distribution - - - General
- D39 - Microeconomics - - Distribution - - - Other
- D6 - Microeconomics - - Welfare Economics
- D60 - Microeconomics - - Welfare Economics - - - General
- D69 - Microeconomics - - Welfare Economics - - - Other
- P42 - Economic Systems - - Other Economic Systems - - - Productive Enterprises; Factor and Product Markets; Prices
- R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
This paper has been announced in the following NEP Reports:
- NEP-ACC-2010-01-10 (Accounting & Auditing)
- NEP-ALL-2010-01-10 (All new papers)
- NEP-PUB-2010-01-10 (Public Finance)
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