Optimal observability in a linear income tax
AbstractWe study the optimal observability of the tax base within the standard linear income tax problem, where observability is determined by the government’s investment into the accurate measurement of the tax base. We characterize the optimal level of observability and derive a new expression for the optimal progressivity, which – in addition to the standard equity efficiency trade-off – accounts for the limited accuracy of an income tax system.
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Bibliographic InfoPaper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2010_04.
Date of creation: Jan 2010
Date of revision:
optimal linear income taxation; observability; tax enforcement;
Other versions of this item:
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
This paper has been announced in the following NEP Reports:
- NEP-ACC-2010-01-23 (Accounting & Auditing)
- NEP-ALL-2010-01-23 (All new papers)
- NEP-PBE-2010-01-23 (Public Economics)
- NEP-PUB-2010-01-23 (Public Finance)
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