IDEAS home Printed from https://ideas.repec.org/a/fis/journl/230233.html

Calculating Optimal Nonlinear Taxes Using Censored Income Data

Author

Listed:
  • Eren GÃœRER
  • Osman KÜÇÜKÅžEN

Abstract

Approximating the skill distribution via observed incomes is a central aspect of estimating the optimal redistributive taxes. Emerging economies may exhibit high minimum wage take-up rates, hiding some of the heterogeneity in skill distribution. This paper shows in the context of Turkey that accounting for the minimum wage policy when approximating skills considerably alters the estimates of optimal redistributive income taxes. Once the mass around the minimum wage is treated as left censored, the optimal tax scheme is significantly more redistributive in comparison to assuming no censoring. This is because allocating some of the mass around the minimum wage towards the lower parts of the skill distribution reduces the total skill stock and increases the standard deviation of the distribution. Consequently, the optimal marginal income taxes become higher, especially for the middle-skill group.

Suggested Citation

  • Eren GÃœRER & Osman KÜÇÜKÅžEN, 2023. "Calculating Optimal Nonlinear Taxes Using Censored Income Data," Fiscaoeconomia, Tubitak Ulakbim JournalPark (Dergipark), issue 2.
    • Handle: RePEc:fis:journl:230233
    DOI: 10.25295/fsecon.1266776
    as

    Download full text from publisher

    File URL: https://dergipark.org.tr/en/download/article-file/3017513
    Download Restriction: no
    File URL: https://libkey.io/10.25295/fsecon.1266776?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. N. Gregory Mankiw & Matthew Weinzierl & Danny Yagan, 2009. "Optimal Taxation in Theory and Practice," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 147-174, Fall.
    2. Hansen, Emanuel, 2021. "Optimal income taxation with labor supply responses at two margins: When is an Earned Income Tax Credit optimal?," Journal of Public Economics, Elsevier, vol. 195(C).
    3. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
    4. Jacquet, Laurence & Lehmann, Etienne & Van der Linden, Bruno, 2013. "Optimal redistributive taxation with both extensive and intensive responses," Journal of Economic Theory, Elsevier, vol. 148(5), pages 1770-1805.
    5. Bas Jacobs, 2013. "From Optimal Tax Theory to Applied Tax Policy," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 69(3), pages 338-389, September.
    6. repec:bla:scandj:v:96:y:1994:i:2:p:275-82 is not listed on IDEAS
    7. Thomas Piketty & Nancy Qian, 2009. "Income Inequality and Progressive Income Taxation in China and India, 1986-2015," American Economic Journal: Applied Economics, American Economic Association, vol. 1(2), pages 53-63, April.
    8. Raj Chetty, 2012. "Bounds on Elasticities With Optimization Frictions: A Synthesis of Micro and Macro Evidence on Labor Supply," Econometrica, Econometric Society, vol. 80(3), pages 969-1018, May.
    9. Gordon, Roger & Li, Wei, 2009. "Tax structures in developing countries: Many puzzles and a possible explanation," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 855-866, August.
    10. Ebert, Udo, 1992. "A reexamination of the optimal nonlinear income tax," Journal of Public Economics, Elsevier, vol. 49(1), pages 47-73, October.
    11. Delignette-Muller, Marie Laure & Dutang, Christophe, 2015. "fitdistrplus: An R Package for Fitting Distributions," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 64(i04).
    12. Marie Laure Delignette-Muller & Christophe Dutang, 2015. "fitdistrplus : An R Package for Fitting Distributions," Post-Print hal-01616147, HAL.
    13. Auriol, Emmanuelle & Warlters, Michael, 2005. "Taxation base in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 625-646, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eren Gürer, 2024. "Monopolistic competition, rising markups, and optimal taxation of participation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 26(1), February.
    2. Albert Jan Hummel, 2021. "Unemployment and tax design," Tinbergen Institute Discussion Papers 21-061/VI, Tinbergen Institute.
    3. Jacobs, Bas & Jongen, Egbert L.W. & Zoutman, Floris T., 2017. "Revealed social preferences of Dutch political parties," Journal of Public Economics, Elsevier, vol. 156(C), pages 81-100.
    4. Thomas Bassetti & Luciano Greco, 2022. "Optimal redistributive policies by publicly provided inputs and income taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(3), pages 504-528, June.
    5. Louis Kaplow, 2024. "Optimal Income Taxation," Journal of Economic Literature, American Economic Association, vol. 62(2), pages 637-738, June.
    6. Albert Jan Hummel, 2021. "Unemployment and Tax Design," CESifo Working Paper Series 9177, CESifo.
    7. Hummel, Albert Jan, 2025. "Unemployment and tax design," Journal of Public Economics, Elsevier, vol. 246(C).
    8. Ferey, Antoine, 2022. "Redistribution and Unemployment Insurance," Rationality and Competition Discussion Paper Series 345, CRC TRR 190 Rationality and Competition.
    9. Doligalski, Paweł & Rojas, Luis E., 2023. "Optimal redistribution with a shadow economy," Theoretical Economics, Econometric Society, vol. 18(2), May.
    10. Zoutman, Floris T. & Jacobs, Bas, 2016. "Optimal redistribution and monitoring of labor supply," Journal of Public Economics, Elsevier, vol. 135(C), pages 15-31.
    11. Støstad, Morten Nyborg & Cowell, Frank, 2024. "Inequality as an externality: Consequences for tax design," Journal of Public Economics, Elsevier, vol. 235(C).
    12. Normann Lorenz & Dominik Sachs, 2011. "Optimal Nonlinear Taxation, Minimum Hours, and the Earned Income Tax Credit," Research Papers in Economics 2011-11, University of Trier, Department of Economics.
    13. Thomas Piketty & Emmanuel Saez, 2012. "Optimal Labor Income Taxation," NBER Working Papers 18521, National Bureau of Economic Research, Inc.
    14. Kristoffer Berg & Paolo Giovanni Piacquadio, 2020. "The Equal-Sacrifice Social Welfare Function with an Application to Optimal Income Taxation," CESifo Working Paper Series 8505, CESifo.
    15. Spencer Bastani & Daniel Waldenström, 2020. "How Should Capital Be Taxed?," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 812-846, September.
    16. Eren Gürer, 2021. "Equity-efficiency implications of a European tax and transfer system," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 57(2), pages 301-346, August.
    17. Lundberg, Jacob, 2017. "Analyzing tax reforms using the Swedish Labour Income Microsimulation Model," Working Paper Series 2017:12, Uppsala University, Department of Economics.
    18. Laurence JACQUET & Etienne LEHMANN, 2021. "How to Tax Different Incomes?," Thema Working Papers 2021-19, THEMA (Théorie Economique, Modélisation et Applications), CY Cergy-Paris University, ESSEC and CNRS.
    19. Carina Neisser, 2021. "The Elasticity of Taxable Income: A Meta-Regression Analysis [The top 1% in international and historical perspective]," The Economic Journal, Royal Economic Society, vol. 131(640), pages 3365-3391.
    20. Spencer Bastani & Jacob Lundberg, 2017. "Political preferences for redistribution in Sweden," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 15(4), pages 345-367, December.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fis:journl:230233. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emre Atsan (email available below). General contact details of provider: https://dergipark.org.tr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.