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The Impact of Changing Skill Levels on Optimal Nonlinear Income Taxes

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  • Craig Brett

    ()
    (Mount Allison University)

  • John Weymark

    ()
    (Department of Economics, Vanderbilt University)

Abstract

The impact of changing an individual's skill level on the solution to a finite population version of the Mirrlees optimal nonlinear income tax problem with quasilinear-in-leisure preferences is investigated. It is shown that it is possible to sign the directions of change in everyone's optimal consumptions and optimal marginal tax rates in response to such a change.

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File URL: http://www.accessecon.com/pubs/VUECON/vu07-w08R.pdf
File Function: Revised version, 2007
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0708.

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Date of creation: May 2007
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Handle: RePEc:van:wpaper:0708

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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Keywords: Optimal income taxation; comparative statics;

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References

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  1. Martin Hellwig, 2005. "A Contribution to the Theory of Optimal Utilitarian Income Taxation," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2005_23, Max Planck Institute for Research on Collective Goods.
  2. Guesnerie, Roger & Seade, Jesus, 1982. "Nonlinear pricing in a finite economy," Journal of Public Economics, Elsevier, vol. 17(2), pages 157-179, March.
  3. Robin Boadway & Pierre Pestieau, 2006. "Tagging and Redistributive Taxation," Working Papers 1071, Queen's University, Department of Economics.
  4. Laurent Simula, 2007. "Optimality conditions and comparative static properties of non-linear income taxes revisited," PSE Working Papers halshs-00588074, HAL.
  5. Weymark, John A., 1986. "A reduced-form optimal nonlinear income tax problem," Journal of Public Economics, Elsevier, vol. 30(2), pages 199-217, July.
  6. Craig Brett & John A. Weymark, 2008. "Public Good Provision And The Comparative Statics Of Optimal Nonlinear Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 255-290, 02.
  7. Weymark, John A, 1987. "Comparative Static Properties of Optimal Nonlinear Income Taxes," Econometrica, Econometric Society, vol. 55(5), pages 1165-85, September.
  8. Boone, J. & Bovenberg, A.L., 2007. "The simple economics of bunching. Optimal taxation with quasi-linear preferences," Open Access publications from Tilburg University urn:nbn:nl:ui:12-194310, Tilburg University.
  9. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  10. Diamond, Peter A, 1998. "Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates," American Economic Review, American Economic Association, vol. 88(1), pages 83-95, March.
  11. Jonathan Hamilton & Pierre Pestieau, 2005. "Optimal Income Taxation and the Ability Distribution: Implications for Migration Equilibria," International Tax and Public Finance, Springer, vol. 12(1), pages 29-45, January.
  12. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  13. Lollivier, Stefan & Rochet, Jean-Charles, 1983. "Bunching and second-order conditions: A note on optimal tax theory," Journal of Economic Theory, Elsevier, vol. 31(2), pages 392-400, December.
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Citations

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Cited by:
  1. Helmuth Cremer & Pierre Pestieau & Maria Racionero, 2011. "Unequal wages for equal utilities," International Tax and Public Finance, Springer, vol. 18(4), pages 383-398, August.
  2. CREMER, Helmuth & DE DONDER, Philippe & PESTIEAU, Pierre, . "Education and social mobility," CORE Discussion Papers RP -2248, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Alain Trannoy, Laurent Simula and, 2009. "Optimal Income Tax under the Threat of Migration by Top-Income Earners," Working Paper Series, Center for Fiscal Studies 2009:8, Uppsala University, Department of Economics.
  4. Laurent Simula, 2010. "Optimal nonlinear income tax and nonlinear pricing: optimality conditions and comparative static properties," Social Choice and Welfare, Springer, vol. 35(2), pages 199-220, July.
  5. Craig Brett, 2012. "The effects of population aging on optimal redistributive taxes in an overlapping generations model," International Tax and Public Finance, Springer, vol. 19(6), pages 777-799, December.
  6. Krause, Alan, 2009. "Optimal nonlinear income taxation with learning-by-doing," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1098-1110, October.
  7. Craig Brett & John A. Weymark, 2010. "How Optimal Nonlinear Income Taxes Change When the Distribution of the Population Changes," Vanderbilt University Department of Economics Working Papers 1003, Vanderbilt University Department of Economics.
  8. Alan Krause, 2008. "Optimal Nonlinear Income Taxation with Learning-by-Doing," Discussion Papers 08/08, Department of Economics, University of York.

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