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On the optimality of optimal income taxation

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  • Felix Bierbrauer

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    (Max Planck Institute for Research on Collective Goods, Bonn)

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    Abstract

    The Mirrleesian model of income taxation restricts attention to simple allocation mechanism with no strategic interdependence, i.e., the optimal labor supply of any one individual does not depend on the labor supply of others. It has been argued by Piketty (1993) that this restriction is substantial because more sophisticated mechanisms can reach first-best allocations that are out of reach with simple mechanisms. In this paper, we assess the validity of Piketty's critique in an independent private values model. As a main result, we show that the optimal sophisticated mechanism is a simple mechanism, or, equivalently, a Mirrleesian income tax system.

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    File URL: http://www.coll.mpg.de/pdf_dat/2010_14online.pdf
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    Paper 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_14.

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    Date of creation: Apr 2010
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    Handle: RePEc:mpg:wpaper:2010_14

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    Keywords: Optimal Income Taxation; Mechanism Design;

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