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Menus of Linear Income Tax Schedules

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  • Alberto Alesina
  • Philippe Weil

Abstract

Relative to traditional piecewise linear income taxation schemes, it is possible to increase government revenues by offering to consumers a menu of linear income tax schedules. In the resulting Pareto-superior equilibrium, consumers sort themselves out according to their (unobservable) productivity level, with high productivity agents choosing the tax schedules with low marginal tax rate and high intercept. This scheme extracts from the economy an unexploited source of revenue which, in contrast with standard supply-side proposals, does not depend on the economy being on the downward-sloping side of the Laffer curve.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3968.

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Date of creation: Jan 1992
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Handle: RePEc:nbr:nberwo:3968

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  1. Joel Slemrod & Shlomo Yitzhaki & Joram Mayshar, 1991. "The Optimal Two-Bracket Linear Income Tax," NBER Working Papers 3847, National Bureau of Economic Research, Inc.
  2. McDonald, James B & Ransom, Michael R, 1979. "Functional Forms, Estimation Techniques and the Distribution of Income," Econometrica, Econometric Society, Econometric Society, vol. 47(6), pages 1513-25, November.
  3. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  4. Jean Tirole & Jean-Jaques Laffont, 1985. "Using Cost Observation to Regulate Firms," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 368, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Sheshinski, Eytan, 1989. "Note on the shape of the optimum income tax schedule," Journal of Public Economics, Elsevier, Elsevier, vol. 40(2), pages 201-215, November.
  6. Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, Elsevier, vol. 7(2), pages 203-235, April.
  7. Sheshinski, Eytan, 1972. "The Optimal Linear Income-Tax," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 39(3), pages 297-302, July.
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Cited by:
  1. Marco Del Negro & Fabrizio Perri & Fabiano Schivardi, 2010. "Tax buyouts," Staff Report, Federal Reserve Bank of Minneapolis 441, Federal Reserve Bank of Minneapolis.
  2. Erzo F.P. Luttmer & Richard J. Zeckhauser, 2008. "Schedule Selection by Agents: from Price Plans to Tax Tables," NBER Working Papers 13808, National Bureau of Economic Research, Inc.
  3. Laszlo Goerke, 2014. "Income Tax Buyouts and Income Tax Evasion," IAAEU Discussion Papers, Institute of Labour Law and Industrial Relations in the European Union (IAAEU) 201401, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
  4. De Donder, Philippe & Hindriks, Jean, 1998. " The Political Economy of Targeting," Public Choice, Springer, Springer, vol. 95(1-2), pages 177-200, April.

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