Optimal Income Taxation: Recent Empirical Applications
In this paper we present a critical survey of two "generations" of studies addressing the empirical computation of optimal income taxes. The first generation, from 1971 up to the late '90s, mainly consists of illustrative numerical exercises rather than of empirical applications. The optimal tax-transfer regime that most commonly emerges from these efforts is a negative income tax + a (almost) flat tax. The second generation is characterized by a more definite focus on policy implementations and, relying on extensions or reformulations of Mirrlees's model, attempts to establish a closer connection between theory and data or econometric estimates. We argue that both generations of studies suffer from taking for granted that the solution to the optimal taxation problem must be an analytical one (a "formula"), to be fed with numerical guesses or estimates. As a first consequence, the theoretical models must adopt very restrictive assumptions in order to generate analytical solutions. As a second consequence, the theoretical results are potentially inconsistent with the empirical estimates that are typically generated under very different (much less restrictive) assumptions. A different approach would consist in avoiding restrictive theoretical assumptions and obtaining the solution computationally by iteratively simulating a microeconometric model. This approach is exemplified here with the computation of optima taxes in Norway and with the evaluation of alternative basic income mechanisms in some European countries.
Volume (Year): (2009)
Issue (Month): 1 ()
|Contact details of provider:|| |
When requesting a correction, please mention this item's handle: RePEc:mul:jqat1f:doi:10.1427/30383:y:2009:i:1:p:47-70. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.