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On optimal non-linear income taxation: numerical results revisited

  • Matti Tuomala


Based on numerical simulations there seems to be a kind of consensus in the optimal tax literature that the marginal tax rate should fall rather than rise with income. Retaining the same formal structure as in Mirrlees (1971) this paper shows that this consensus is sensitive to a choice of the assumed form of utility of consumption. For the utility function quadratic in consumption optimum tax schedules look rather like those traditionally chosen by governments, i.e. the marginal tax rates rise with income.

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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 17 (2010)
Issue (Month): 3 (June)
Pages: 259-270

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Handle: RePEc:kap:itaxpf:v:17:y:2010:i:3:p:259-270
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  1. Rolf Aaberge & Ugo Colombino, 2006. "Designing Optimal Taxes with a Microeconometric Model of Household Labour Supply," ICER Working Papers 37-2006, ICER - International Centre for Economic Research.
  2. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  3. Revesz, John T, 1989. "The Optimal Taxation of Labour Income," Public Finance = Finances publiques, , vol. 44(3), pages 453-75.
  4. Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, vol. 84(1), pages 1-32, April.
  5. Michael P. Keane & Robert A. Moffitt, 1995. "A structural model of multiple welfare program participation and labor supply," Working Papers 557, Federal Reserve Bank of Minneapolis.
  6. BOADWAY, Robin & CUFF, Katherine & MARCHAND, Maurice, . "Optimal income taxation with quasi-linear preferences revisited," CORE Discussion Papers RP 1466, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Blundell, Richard William & Ham, John & Meghir, Costas, 1987. "Unemployment and Female Labour Supply," CEPR Discussion Papers 149, C.E.P.R. Discussion Papers.
  8. David Bevan, 2002. "Optimum Income Taxation when Earnings are Imperfectly Correlated with Productivity," Economics Series Working Papers 101, University of Oxford, Department of Economics.
  9. Atkinson, A. B., 1990. "Public economics and the economic public," European Economic Review, Elsevier, vol. 34(2-3), pages 225-248, May.
  10. Louis Kaplow, 2007. "Optimal income transfers," International Tax and Public Finance, Springer, vol. 14(3), pages 295-325, June.
  11. Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059.
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