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Optimal taxation with multiple incomes and types

Author

Listed:
  • Kevin Spiritus

    (Erasmus University Rotterdam)

  • Étienne Lehmann

    (CRED - Centre de Recherche en Economie et Droit - Université Paris-Panthéon-Assas)

  • Sander Renes

    (TU Delft - Delft University of Technology)

  • Floris T Zoutman

    (NHH - Norwegian School of Economics and Business Administration, Department of Economics - Norwegian School of Economics and Business Administration)

Abstract

We analyze the optimal nonlinear income tax schedule for taxpayers with multiple incomes and multiple unobserved characteristics. We identify smoothness assumptions and extensions of the single crossing conditions that enable the characterization of the optimum through variational calculus. Both the tax perturbation and mechanism design approaches yield identical results when the number of incomes equals the number of unobserved characteristics. Notably, the mechanism design approach requires slightly less stringent assumptions than the tax perturbation approach. Additionally, we introduce a numerical method to determine the optimal tax schedule. Applied to couples, the optimal isotax curves are nearly linear and parallel. Additional contributions include a Pareto efficiency test and a condition on primitives ensuring the sufficiency of the government's necessary conditions, thereby guaranteeing the uniqueness of the solution.

Suggested Citation

  • Kevin Spiritus & Étienne Lehmann & Sander Renes & Floris T Zoutman, 2025. "Optimal taxation with multiple incomes and types," Post-Print hal-05097103, HAL.
    • Handle: RePEc:hal:journl:hal-05097103
    DOI: 10.3982/TE5479
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    Citations

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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. 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. 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.
    4. Bierbrauer, Felix & Boyer, Pierre & Peichl, Andreas & Weishaar, Daniel, 2023. "The taxation of couples," CEPR Discussion Papers 18138, C.E.P.R. Discussion Papers.
    5. Kevin Spiritus, 2022. "Optimal Commodity Taxation Under Non-linear Income Taxation," Tinbergen Institute Discussion Papers 22-018/VI, Tinbergen Institute.
    6. 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.
    7. 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.
    8. 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.
    9. 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.

    More about this item

    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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