IDEAS home Printed from https://ideas.repec.org/a/spr/sochwe/v35y2010i2p199-220.html
   My bibliography  Save this article

Optimal nonlinear income tax and nonlinear pricing: optimality conditions and comparative static properties

Author

Listed:
  • Laurent Simula

    ()

Abstract

Using the Mirrlees optimal income tax model, with no income effects on labour supply, this article shows that the discrete population approach provides new insights into the characterization of the optimal tax system, which complements the previous findings. The analysis is based on the "Spence-Mirrlees wedge" which corresponds, at each observed gross income level, to a ratio between the marginal tax rate of the individual for whom the bundle is designed and that of his nearest more productive neighbour if he chooses to mimic. Using this wedge, a necessary and sufficient condition for bunching to be optimal is obtained in terms of the primitives of the model, separating optima are characterized geometrically, and comparative statics properties derived, notably with respect to skill levels and individual social weights. It is then shown that the analysis extends to adverse-selection problems where participation constraints replace the tax revenue constraint.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Laurent Simula, 2010. "Optimal nonlinear income tax and nonlinear pricing: optimality conditions and comparative static properties," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 35(2), pages 199-220, July.
  • Handle: RePEc:spr:sochwe:v:35:y:2010:i:2:p:199-220 DOI: 10.1007/s00355-009-0437-x
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s00355-009-0437-x
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Boadway, Robin & Cuff, Katherine & Marchand, Maurice, 2000. " Optimal Income Taxation with Quasi-linear Preferences Revisited," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(4), pages 435-460.
    2. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    3. Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, pages 203-235.
    4. Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059.
    5. Lollivier, Stefan & Rochet, Jean-Charles, 1983. "Bunching and second-order conditions: A note on optimal tax theory," Journal of Economic Theory, Elsevier, vol. 31(2), pages 392-400, December.
    6. Menegatti, Mario, 2001. "On the Conditions for Precautionary Saving," Journal of Economic Theory, Elsevier, vol. 98(1), pages 189-193, May.
    7. Weymark, John A, 1987. "Comparative Static Properties of Optimal Nonlinear Income Taxes," Econometrica, Econometric Society, vol. 55(5), pages 1165-1185, September.
    8. Brett, Craig & Weymark, John A., 2008. "The impact of changing skill levels on optimal nonlinear income taxes," Journal of Public Economics, Elsevier, pages 1765-1771.
    9. Jan Boone & Lans Bovenberg, 2007. "The Simple Economics of Bunching: Optimal Taxation with Quasi-Linear Preferences," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(1), pages 89-105, February.
    10. Ebert, Udo, 1992. "A reexamination of the optimal nonlinear income tax," Journal of Public Economics, Elsevier, pages 47-73.
    11. Hellwig, Martin F., 2007. "The undesirability of randomized income taxation under decreasing risk aversion," Journal of Public Economics, Elsevier, pages 791-816.
    12. Guesnerie Roger & Seade Jesus, 1981. "Nonlinear pricing in a finite economy," CEPREMAP Working Papers (Couverture Orange) 8118, CEPREMAP.
    13. Brett, Craig & Weymark, John A., 2008. "The impact of changing skill levels on optimal nonlinear income taxes," Journal of Public Economics, Elsevier, pages 1765-1771.
    14. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, pages 213-240.
    15. Diamond, Peter A, 1998. "Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates," American Economic Review, American Economic Association, vol. 88(1), pages 83-95, March.
    16. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    17. Jonathan Hamilton & Pierre Pestieau, 2005. "Optimal Income Taxation and the Ability Distribution: Implications for Migration Equilibria," International Tax and Public Finance, Springer;International Institute of Public Finance, pages 29-45.
    18. Weymark, John A., 1986. "A reduced-form optimal nonlinear income tax problem," Journal of Public Economics, Elsevier, pages 199-217.
    19. Richard Blundell, 1992. "Labour supply and taxation: a survey," Fiscal Studies, Institute for Fiscal Studies, pages 15-40.
    20. Guesnerie, Roger & Seade, Jesus, 1982. "Nonlinear pricing in a finite economy," Journal of Public Economics, Elsevier, pages 157-179.
    21. Jean-Jacques Laffont, 1989. "The Economics of Uncertainty and Information," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121360, January.
    22. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, pages 213-240.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jang-Ting Guo & Alan Krause, 2015. "Changing Social Preferences and Optimal Redistributive Taxation," Working Papers 201512, University of California at Riverside, Department of Economics.
    2. Guo, Jang-Ting & Krause, Alan, 2015. "Dynamic nonlinear income taxation with quasi-hyperbolic discounting and no commitment," Journal of Economic Behavior & Organization, Elsevier, pages 101-119.
    3. Alan Krause, 2015. "On Redistributive Taxation under the Threat of High-Skill Emigration," Discussion Papers 15/21, Department of Economics, University of York.
    4. Craig Brett, 2012. "The effects of population aging on optimal redistributive taxes in an overlapping generations model," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(6), pages 777-799, December.
    5. repec:spr:sochwe:v:48:y:2017:i:4:d:10.1007_s00355-017-1038-8 is not listed on IDEAS
    6. Laurent Simula, 2010. "Optimal nonlinear income tax and nonlinear pricing: optimality conditions and comparative static properties," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, pages 199-220.
    7. Brett, Craig & Weymark, John A., 2011. "How optimal nonlinear income taxes change when the distribution of the population changes," Journal of Public Economics, Elsevier, pages 1239-1247.
    8. Laurent Simula & Alain Trannoy, 2012. "Shall we keep the highly skilled at home? The optimal income tax perspective," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 39(4), pages 751-782, October.
    9. Li, Jinlu & Lin, Shuanglin, 2016. "Optimal income taxation with discrete skill distribution," Mathematical Social Sciences, Elsevier, vol. 83(C), pages 58-70.
    10. Spencer Bastani, 2015. "Using the Discrete Model to Derive Optimal Income Tax Rates," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 71(1), pages 106-117, March.
    11. Craig Brett & John A. Weymark, 2009. "Comparative Statics of Optimal Nonlinear Income Taxation in the Presence of a Publicly Provided Input," Vanderbilt University Department of Economics Working Papers 0910, Vanderbilt University Department of Economics.
    12. Sebastian G. Kessing & Benny Schneider, 2014. "Regional Investment and Individual Redistribution in a Federation," Volkswirtschaftliche Diskussionsbeiträge 168-14, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    13. Bierbrauer, Felix J. & Boyer, Pierre C., 2013. "Political competition and Mirrleesian income taxation: A first pass," Journal of Public Economics, Elsevier, pages 1-14.
    14. Alan Krause, 2012. "Nonlinear Income Tax Reforms," Discussion Papers 12/03, Department of Economics, University of York.

    More about this item

    Keywords

    Optimal tax; Income tax; Nonlinear pricing; Adverse-selection; Comparative statics; D82; D86; H21; H31;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

    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:spr:sochwe:v:35:y:2010:i:2:p:199-220. 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: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: http://www.springer.com .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.