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Optimal Marginal Tax Rates for Low Incomes: Positive, Negative, or Zero?

  • Homburg, Stefan

Previous studies have shown that the optimal marginal tax rate at the bottom of the income distribution may be positive, negative, or even zero. This paper reexamines this problem in a unified framework and tries to evaluate the arguments. It turns out that the case for positive marginal tax rates is quite strong, whereas negative marginal tax rates seem to be based on a misconception.

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File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-255.pdf
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Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-255.

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Length: 15 pages
Date of creation: May 2002
Date of revision:
Handle: RePEc:han:dpaper:dp-255
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  1. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
  2. Guesnerie Roger & Seade Jesus, 1981. "Nonlinear pricing in a finite economy," CEPREMAP Working Papers (Couverture Orange) 8118, CEPREMAP.
  3. 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.
  4. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, vol. 13(1), pages 101-110, February.
  5. Stefan Homburg, 2001. "The Optimal Income Tax: Restatement and Extensions," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(4), pages 363-395, November.
  6. 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.
  7. Browning, Edgar K., 1995. "Effects of the Earned Income Tax Credit on Income and Welfare," National Tax Journal, National Tax Association, vol. 48(1), pages 23-43, March.
  8. V. Joseph Hotz, 2003. "The Earned Income Tax Credit," NBER Chapters, in: Means-Tested Transfer Programs in the United States, pages 141-198 National Bureau of Economic Research, Inc.
  9. 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.
  10. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
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