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Does higher tax morale imply higher optimal labor income tax rate?

  • Andras Simonovits


    (Institute of Economics, Research Center for Economic and Regional Studies, Hungarian Academy of Sciences, also Institute of Mathematics, Budapest University of Technology and Economics also Department of Economics, CEU)

We analyze the impact of tax morale on the optimal progressive labor income taxation. Only universal basic income is financed from a linear tax and the financing of public goods is neglected. Each individual supplies labor and (un)declares earning, depending on his labor disutility and tax morale. Limiting the utilitarianism to the poorer parts of the population (defined by the inclusion share), the optimal tax rate is an increasing function of the tax morale and a decreasing function of the inclusion share, provide that the average wage of the included is higher than 0.54 times the average wage.

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Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 1218.

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Length: 24 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:has:discpr:1218
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  8. Feldstein, Martin, 1973. "On the optimal progressivity of the income tax," Journal of Public Economics, Elsevier, vol. 2(4), pages 357-376.
  9. Andras Simonovits, 2011. "Higher tax morale implies a higher optimal income tax rate," IEHAS Discussion Papers 1137, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  10. Zsombor Z. Meder & Andras Simonovits & Janos Vincze, 2012. "Tax Morale and Tax Evasion: Social Preferences and Bounded Rationality," IEHAS Discussion Papers 1203, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
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