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Optimal Income Taxation

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  • Louis Kaplow

Abstract

This article explores subjects in optimal income taxation characterized by recent research interest, practical importance in light of concerns about inequality, potential for misunderstanding, and prospects for advancement. Throughout the analysis, paths for further investigation are highlighted. Areas of focus include multidimensional abilities and endogenous wages; asymmetric information and the income of founders; production and consumption externalities from labor effort; market power and rents; behavioral phenomena relating to perceptions of the income tax schedule, myopic labor supply, and the interactions of savings, savings policies, and labor supply; optimal income transfers; the relationship between optimal income taxation and the use of other instruments; and issues relating to the social welfare function and utility functions, including non-welfarist objectives, welfare weights, heterogeneous preferences, and taxation of the family.

Suggested Citation

  • Louis Kaplow, 2024. "Optimal Income Taxation," Journal of Economic Literature, American Economic Association, vol. 62(2), pages 637-738, June.
    • Handle: RePEc:aea:jeclit:v:62:y:2024:i:2:p:637-738
    DOI: 10.1257/jel.20221647
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    Cited by:

    1. Charles F. Manski, 2025. "What is the general Welfare? Welfare Economic Perspectives on Equity," Papers 2501.08244, arXiv.org, revised Oct 2025.
    2. Thomas Aronsson & Olof Johansson-Stenman, 2024. "Income Taxation and Ability Rank," Graz Economics Papers 2024-21, University of Graz, Department of Economics.
    3. repec:hpe:journl:y:2025:v:253:i:2:p:91-127 is not listed on IDEAS
    4. Checchi, Daniele & Figari, Francesco & Fiorio, Carlo, 2026. "Salary Caps in the Public Administration," IZA Discussion Papers 18450, IZA Network @ LISER.
    5. Marko Ledić & Ivica Rubil, 2026. "How do indirect taxes reshape tax-benefit-revealed social preferences for redistribution?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 53(1), pages 167-199, February.
    6. Aronsson, Thomas & Johansson-Stenman, Olof, 2024. "Income Taxation and Ability Rank," Umeå Economic Studies 1031, Umeå University, Department of Economics.
    7. Joel Slemrod, 2026. "Taxing Identity," Tax Policy and the Economy, University of Chicago Press, vol. 40(1), pages 207-237.
    8. Deparade, Darius & Jarmolinski, Lennart & Mohr, Peter, 2025. "Behavioral interventions, tax compliance and consequences on inequality," Discussion Papers 2025/4, Free University Berlin, School of Business & Economics.
    9. Lia Pricope (Sabou) & Sorin Nicolae Borlea, 2023. "Impact Oftax Burden Upon Tax Fraudand Tax Evasion," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(25), pages 1-22.
    10. Hammitt, James K., 2026. "Judging Social Priority and the Marginal Utility of Income Among Individuals," TSE Working Papers 26-1707, Toulouse School of Economics (TSE).
    11. Dustin L. Swonder & Damián Vergara, 2025. "A Sufficient Statistics Approach to Optimal Corporate Taxes," NBER Working Papers 34517, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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