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The Optimal Income Tax: Restatement and Extensions

  • Homburg, Stefan

The paper presents an axiomatic restatement of the standard approach to nonlinear income taxation. It assumes a finite number of taxpayers rather than an uncountable infinity. Analytical tools are developed which facilitate proving the existence of tax schedules that are continuous, differentiable almost everywhere and possess left- and right-derivatives at every point of non-differentiability. These tax schedules even become differentiable in the limit. Numerical examples are provided.

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File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-252.pdf
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Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-252.

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Length: 27 pages
Date of creation: May 2002
Date of revision:
Handle: RePEc:han:dpaper:dp-252
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  1. Guesnerie, Roger & Seade, Jesus, 1982. "Nonlinear pricing in a finite economy," Journal of Public Economics, Elsevier, vol. 17(2), pages 157-179, March.
  2. Robin Boadway & Michael Keen, 1991. "Public Goods, Self-Selection and Optimal Income Taxation," Working Papers 828, Queen's University, Department of Economics.
  3. Strawczynski, Michel, 1998. "Social insurance and the optimum piecewise linear income tax," Journal of Public Economics, Elsevier, vol. 69(3), pages 371-388, September.
  4. Diamond, P., 1994. "Optimal Income Taxation: An Exemple with a U-Shaped Pattern of Optimal Marginal Tax Rates," Working papers 94-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Seade, Jesus, 1982. "On the Sign of the Optimum Marginal Income Tax," Review of Economic Studies, Wiley Blackwell, vol. 49(4), pages 637-43, October.
  6. Matthews, Steven & Moore, John, 1987. "Monopoly Provision of Quality and Warranties: An Exploration in the Theory of Multidimensional Screening," Econometrica, Econometric Society, vol. 55(2), pages 441-67, March.
  7. Wane, Waly, 2000. "The optimal income tax when poverty is a public"bad"," Policy Research Working Paper Series 2270, The World Bank.
  8. Dagobert L. Brito & Jonathan H. Hamilton & Steven M. Slutsky & Joseph E. Stiglitz, 1990. "Pareto Efficient Tax Structures," NBER Working Papers 3288, National Bureau of Economic Research, Inc.
  9. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
  10. Weibull, Jorgen W., 1989. "A note on the continuity of incentive schedules," Journal of Public Economics, Elsevier, vol. 39(2), pages 239-243, July.
  11. 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.
  12. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63, pages 309.
  13. Phelps, Edmund S, 1973. "Taxation of Wage Income for Economic Justice," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 331-54, August.
  14. Svensson, Lars-Gunnar & Weibull, Jorgen W., 1986. "An upper bound on optimal income taxes," Journal of Public Economics, Elsevier, vol. 30(2), pages 165-181, July.
  15. Roell, Ailsa A., 1985. "A note on the marginal tax rate in a finite economy," Journal of Public Economics, Elsevier, vol. 28(2), pages 267-272, November.
  16. Kanbur, Ravi & Tuomala, Matti, 1994. " Inherent Inequality and the Optimal Graduation of Marginal Tax Rates," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(2), pages 275-82.
  17. Dixit, Avinash & Seade, Jesus, 1979. "Utilitarian versus egalitarian redistributions," Economics Letters, Elsevier, vol. 4(2), pages 121-124.
  18. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, vol. 13(1), pages 101-110, February.
  19. Sadka, Efraim, 1976. "On Income Distribution, Incentive Effects and Optimal Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 261-67, June.
  20. Christiansen, Vidar, 1983. " Some Important Properties of the Social Marginal Utility of Income," Scandinavian Journal of Economics, Wiley Blackwell, vol. 85(3), pages 359-71.
  21. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  22. Ebert, Udo, 1992. "A reexamination of the optimal nonlinear income tax," Journal of Public Economics, Elsevier, vol. 49(1), pages 47-73, October.
  23. Slemrod, Joel & Yitzhaki, Shlomo & Mayshar, Joram & Lundholm, Michael, 1994. "The optimal two-bracket linear income tax," Journal of Public Economics, Elsevier, vol. 53(2), pages 269-290, February.
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