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The Pareto-Frontier in a Simple Mirrleesian Model of Income Taxation

Listed author(s):
  • Pierre C. Boyer
  • Felix J. Bierbrauer

We characterize the Pareto-frontier in a simple Mirrleesian model of income taxation. We show how the second-best frontier which incorporates incentive constraints due to private information on productive abilities relates to the first-best frontier which takes only resource constraints into account. In particular, we argue that the second-best frontier can be interpreted as a Laffer-curve. We also use this second-best frontier for a comparative statics analysis of how optimal income tax rates vary with the degree of inequity aversion, and for a characterization of optimal public-good provision. We show that a more inequity averse policy maker chooses tax schedules that are more redistributive and involve higher marginal tax rates, while simultaneously providing less public good.

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File URL: http://www.jstor.org/stable/10.15609/annaeconstat2009.113-114.185
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Article provided by GENES in its journal Annals Of Economics and Statistics.

Volume (Year): (2014)
Issue (Month): 113-114 ()
Pages: 185-206

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Handle: RePEc:adr:anecst:y:2014:i:113-114:p:185-206
DOI: 10.15609/annaeconstat2009.113-114.185
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  1. Gahvari, Firouz, 2006. "On the marginal cost of public funds and the optimal provision of public goods," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1251-1262, August.
  2. Felix Bierbrauer & Pierre C. Boyer, 2010. "Political competition and Mirrleesian income taxation: A first pass," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2010_45, Max Planck Institute for Research on Collective Goods.
  3. Boadway, Robin & Cuff, Katherine & Marchand, Maurice, 2000. " Optimal Income Taxation with Quasi-linear Preferences Revisited," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(4), pages 435-460.
  4. Robin Boadway & Michael Keen, 1991. "Public Goods, Self-Selection and Optimal Income Taxation," Working Papers 828, Queen's University, Department of Economics.
  5. Robin Boadway & Laurence Jacquet, 2006. "Optimal Marginal and Average Income Taxation under Maxi-min," Working Papers 1073, Queen's University, Department of Economics.
  6. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
  7. Felix Bierbrauer, 2009. "Optimal Income Taxation and Public Good Provision with Endogenous Interest Groups," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(2), pages 311-342, 04.
  8. Eytan Sheshinski, 1972. "The Optimal Linear Income-tax," Review of Economic Studies, Oxford University Press, vol. 39(3), pages 297-302.
  9. Boone, J. & Bovenberg, A.L., 2007. "The simple economics of bunching. Optimal taxation with quasi-linear preferences," Other publications TiSEM 85032fa4-f8bb-4885-bb49-3, Tilburg University, School of Economics and Management.
  10. Weymark, John A, 1987. "Comparative Static Properties of Optimal Nonlinear Income Taxes," Econometrica, Econometric Society, vol. 55(5), pages 1165-1185, September.
  11. 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.
  12. Weymark, John A., 1986. "A reduced-form optimal nonlinear income tax problem," Journal of Public Economics, Elsevier, vol. 30(2), pages 199-217, July.
  13. Sandmo, Agnar, 1998. "Redistribution and the marginal cost of public funds," Journal of Public Economics, Elsevier, vol. 70(3), pages 365-382, December.
  14. Hellwig, Martin F., 1986. "The optimal linear income tax revisited," Journal of Public Economics, Elsevier, vol. 31(2), pages 163-179, November.
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