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Optimality conditions and comparative static properties of non-linear income taxes revisited

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  • Laurent Simula

    (PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, GREMAQ - Groupe de recherche en économie mathématique et quantitative - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique, IDEP - Institut d'économie publique - IDEP)

Abstract

Optimality conditions and comparative static properties of the optimal Mirrleesian nonlinear income tax are obtained for a finite population and quasilinear-in-consumption preferences. Contrary to Weymark (1987) who considers quasilinear-in-leisure preferences, the linearity with respect to gross income, which is observed by the government and used as a tax base, is lost. A reduced-form optimal income tax problem is derived, in which consumption levels are obtained as functions of gross incomes. The contribution of this new reduced form is twofold. First, the optimal allocation can be characterized geometrically in a simple way. Second, comparative static results with respect to individual productivities are easy to obtain.

Suggested Citation

  • Laurent Simula, 2007. "Optimality conditions and comparative static properties of non-linear income taxes revisited," PSE Working Papers halshs-00588074, HAL.
    • Handle: RePEc:hal:psewpa:halshs-00588074
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00588074v1
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    Cited by:

    1. Alan Krause, 2008. "Optimal Nonlinear Income Taxation with Learning-by-Doing," Discussion Papers 08/08, Department of Economics, University of York.
    2. 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.
    3. Leung, Tin Cheuk & Yazici, Hakki, 2011. "On the Optimal Skill Distribution in a Mirrleesian Economy," MPRA Paper 32596, University Library of Munich, Germany.
    4. Brett, Craig & Weymark, John A., 2008. "The impact of changing skill levels on optimal nonlinear income taxes," Journal of Public Economics, Elsevier, vol. 92(7), pages 1765-1771, July.
    5. Hakki Yazici & Tin Cheuk Leung, 2017. "On Optimal Skill Distribution in a Mirrleesian Economy," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 31(2), pages 73-82.
    6. Craig Brett & John A. Weymark, 2005. "Optimal Nonlinear Taxation of Income and Savings in a Two Class Economy," Vanderbilt University Department of Economics Working Papers 0525, Vanderbilt University Department of Economics.
    7. Craig Brett & John A. Weymark, 2019. "Optimal nonlinear taxation of income and savings without commitment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(1), pages 5-43, February.
    8. Krause, Alan, 2009. "Optimal nonlinear income taxation with learning-by-doing," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1098-1110, October.

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