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Nonlinear Income Tax Reforms

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  • Alan Krause

Abstract

This paper addresses questions of the following nature: under what conditions does a welfare-improving reform of a nonlinear income tax system necessitate a change in a particular agent's marginal tax rate or total tax burden? Our analysis is therefore a study in tax reform, rather than in optimal taxation. We consider a simple model with three types of agents (high-skill, middle-skill, and low-skill) who have preferences that are quasi-linear in labour. Under these assumptions and using our methodology, specific characteristics of the initial suboptimal tax system can be determined when all welfare-improving tax reforms require specified changes in a particular agent's tax treatment. Some other necessary features of the tax reform can also be determined. Thus, unlike many tax reform analyses in the literature, we are able to reach a number of clear-cut conclusions.

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Bibliographic Info

Paper provided by Department of Economics, University of York in its series Discussion Papers with number 12/03.

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Date of creation: Jan 2012
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Handle: RePEc:yor:yorken:12/03

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Keywords: tax reform; nonlinear income taxation.;

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  1. Blackorby, Charles & Brett, Craig, 2000. "Fiscal Federalism Revisited," Journal of Economic Theory, Elsevier, vol. 92(2), pages 300-317, June.
  2. Brett, Craig & Weymark, John A., 2011. "How optimal nonlinear income taxes change when the distribution of the population changes," Journal of Public Economics, Elsevier, vol. 95(11), pages 1239-1247.
  3. Simula, Laurent, 2009. "Optimal Nonlinear Income Tax and Nonlinear Pricing: Optimality Conditions and Comparative Static Properties," Working Paper Series, Center for Fiscal Studies 2009:11, Uppsala University, Department of Economics.
  4. Hatta, Tatsuo, 1977. "A Theory of Piecemeal Policy Recommendations," Review of Economic Studies, Wiley Blackwell, vol. 44(1), pages 1-21, February.
  5. Alan Krause, 2007. "Generational incidence of savings taxation versus capital-income taxation," International Journal of Economic Theory, The International Society for Economic Theory, vol. 3(2), pages 113-129.
  6. Jean-Yves Duclos & Paul Makdissi & Quentin Wodon, 2004. "Socially-Improving Tax Reforms," Cahiers de recherche 0401, CIRPEE.
  7. Alan Krause, 2009. "A general equilibrium analysis of the Laffer argument," Social Choice and Welfare, Springer, vol. 33(4), pages 601-615, November.
  8. repec:ubc:bricol:98-09 is not listed on IDEAS
  9. Brett, Craig, 1998. "Tax reform and collective family decision-making," Journal of Public Economics, Elsevier, vol. 70(3), pages 425-440, December.
  10. Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, number 9780521497695, October.
  11. Sushama Murty & R. Robert Russell, 2005. "Externality Policy Reform: A General Equilibrium Analysis," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(1), pages 117-150, 02.
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