IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/16863.html

Using Consumption Data to Derive Optimal Income and Capital Tax Rates

Author

Listed:
  • Hellwig, Christian
  • Werquin, Nicolas

Abstract

We study a Mirrleesian economy with labor income, consumption, and retirement savings or bequests. We derive a novel representation of optimal non-linear income and savings distortions that highlights the role of consumption inequality and consumption responses to tax changes. Our representation establishes a close connection between the formula for top income taxes of Saez (2001) and the uniform commodity taxation theorem of Atkinson and Stiglitz (1976): One cannot be valid without the other, and departures from this joint benchmark lead to a clear trade-off between income and savings taxes. Consumption data in turn discipline the optimal departure from this benchmark. Because consumption is much less concentrated than income, it is optimal to shift a substantial fraction of the top earners’ tax burden from income to savings.

Suggested Citation

  • Hellwig, Christian & Werquin, Nicolas, 2022. "Using Consumption Data to Derive Optimal Income and Capital Tax Rates," CEPR Discussion Papers 16863, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:16863
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP16863
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

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


    Cited by:

    1. is not listed on IDEAS
    2. 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.
    3. Antoine Ferey & Benjamin B. Lockwood & Dmitry Taubinsky, 2024. "Sufficient Statistics for Nonlinear Tax Systems with General Across-Income Heterogeneity," American Economic Review, American Economic Association, vol. 114(10), pages 3206-3249, October.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

    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:cpr:ceprdp:16863. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CEPR (email available below). General contact details of provider: https://cepr.org/ .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.