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Optimal taxation and top incomes

Author

Listed:
  • Yuri Andrienko

    (University of Sydney)

  • Patricia Apps

    (University of Sydney
    IZA)

  • Ray Rees

    (University of Munich
    University of Oslo
    CESifo)

Abstract

In many high-income countries over the past three decades there has been both large growth in inequality of wages and income and a shift in the burden of taxation from the top to the middle of the income distribution. A literature has developed which focuses on optimal tax rates for the top 1 % of the income distribution. In contrast, this paper considers the effect of inequality growth on the structure of a piecewise linear tax system defined over the entire income distribution. Our results suggest that the appropriate response to the increases in inequality would have been a shift towards a tax system with a lower tax rate in the lower half of the distribution together with a highly marginal rate progressive structure in the upper half, a clear differentiation between the top 10 % and the top 1 % and a higher top tax rate. Further inequality growth strengthens these characteristics of the optimal tax structure.

Suggested Citation

  • Yuri Andrienko & Patricia Apps & Ray Rees, 2016. "Optimal taxation and top incomes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(6), pages 981-1003, December.
    • Handle: RePEc:kap:itaxpf:v:23:y:2016:i:6:d:10.1007_s10797-015-9391-y
    DOI: 10.1007/s10797-015-9391-y
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    References listed on IDEAS

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    Cited by:

    1. Patricia Apps & Ray Rees, 2018. "Optimal family taxation and income inequality," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(5), pages 1093-1128, October.
    2. Spencer Bastani & Sören Blomquist & Luca Micheletto, 2019. "Nonlinear and piecewise linear income taxation, and the subsidization of work-related goods," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(4), pages 806-834, August.
    3. Vincenzo Prete & Alessandro Sommacal & Claudio Zoli, 2016. "Optimal Non-Welfarist Income Taxation for Inequality and Polarization Reduction," Working Papers 23/2016, University of Verona, Department of Economics.
    4. Patricia Apps & Ray Rees, 2016. "Optimal Taxation, Income Inequality and the Household," CESifo Working Paper Series 5845, CESifo.
    5. Patricia Apps & Ray Rees, 2022. "Inequality measurement and tax/transfer policy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(4), pages 953-984, August.
    6. Vidar Christiansen & Zhiyang Jia & Thor O. Thoresen, 2022. "Assessing income tax perturbations," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(2), pages 472-504, April.

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