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Optimal Taxation with Multiple Incomes and Types

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  • Spiritus, Kevin
  • Lehmann, Etienne
  • Renes, Sander
  • Zoutman, Floris

Abstract

We analyze the optimal nonlinear income tax schedule when taxpayers earn multiple incomes and differ along many unobserved dimensions. We compare the tax perturbation and mechanism design approaches and find that both produce the same results if the number of incomes is equal to the number of unobserved characteristics. The mechanism design approach then requires slightly less stringent assumptions than the tax perturbation approach. We introduce a numerical method to determine the optimal tax schedule. Applied to the optimal taxation of couples, we find that the optimal isotax curves are close to linear and parallel. We make several additional contributions, including a test for Pareto efficiency and a condition on primitives that ensures the government’s necessary conditions are sufficient and the solution to the problem is unique.

Suggested Citation

  • Spiritus, Kevin & Lehmann, Etienne & Renes, Sander & Zoutman, Floris, 2022. "Optimal Taxation with Multiple Incomes and Types," CEPR Discussion Papers 16797, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16797
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    Cited by:

    1. Jacquet, Laurence & Lehmann, Etienne, 2021. "How to Tax Different Incomes?," IZA Discussion Papers 14739, Institute of Labor Economics (IZA).
    2. Thomas Aronsson & Olof Johansson-Stenman & Ronald Wendner, 2024. "Charity, Status, and Optimal Taxation: Welfarist and Non-Welfarist Approaches," Journal of Political Economy Microeconomics, University of Chicago Press, vol. 2(4), pages 747-785.
    3. Fageda, Xavier & Oesingmann, Katrin, 2025. "The impact of carbon pricing on tourist destinations: Shifts in demand, supply and emissions in the European aviation market," Economics of Transportation, Elsevier, vol. 42(C).
    4. Kevin Spiritus, 2022. "Optimal Commodity Taxation Under Non-linear Income Taxation," Tinbergen Institute Discussion Papers 22-018/VI, Tinbergen Institute.
    5. Robin Boadway & Kevin Spiritus, 2025. "Optimal taxation of normal and excess returns to risky assets," Scandinavian Journal of Economics, Wiley Blackwell, vol. 127(2), pages 366-389, April.
    6. Kevin Spiritus, 2025. "Optimal commodity taxation when households earn multiple incomes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 32(1), pages 98-119, February.
    7. Paweł Doligalski & Piotr Dworczak & Mohammad Akbarpour & Scott Duke Kominers*, 2025. "Optimal Redistribution via Income Taxation and Market Design," Bristol Economics Discussion Papers 25/787, School of Economics, University of Bristol, UK.
    8. Niemeier, Hans-Martin & Forsyth, Peter, 2025. "Addressing the impact of airport pricing, investment and operations on greenhouse gas emissions," Journal of Air Transport Management, Elsevier, vol. 122(C).
    9. William Dodds, 2024. "Solving multidimensional screening problems using a generalized single crossing property," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 77(4), pages 1025-1084, June.
    10. Proost, Stef, 2024. "Looking for winning policies to address the climate issue in EU-aviation," Journal of Air Transport Management, Elsevier, vol. 115(C).
    11. Aart Gerritsen, 2024. "Optimal nonlinear taxation: a simpler approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(2), pages 486-510, April.
    12. Bierbrauer, Felix & Boyer, Pierre & Peichl, Andreas & Weishaar, Daniel, 2023. "The taxation of couples," CEPR Discussion Papers 18138, C.E.P.R. Discussion Papers.
    13. Felix J. Bierbrauer & Pierre C. Boyer & Andreas Peichl & Daniel Weishaar, 2023. "The Political Economy of Joint Taxation," ECONtribute Discussion Papers Series 239, University of Bonn and University of Cologne, Germany.
    14. Fageda, Xavier & Oesingmann, Katrin, 2025. "Intercontinental air travel in the era of carbon pricing: demand and hub shifts," Transportation Research Part A: Policy and Practice, Elsevier, vol. 200(C).
    15. Bernardo, Valeria & Fageda, Xavier & Teixidó, Jordi, 2024. "Flight ticket taxes in Europe: Environmental and economic impact," Transportation Research Part A: Policy and Practice, Elsevier, vol. 179(C).

    More about this item

    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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