Optimal Nonlinear Income Tax and Nonlinear Pricing: Optimality Conditions and Comparative Static Properties
Using the Mirrlees optimal income tax model, with no income effects on labour supply, this article shows that the discrete population approach provides new insights into the characterization of the optimal tax system, which complements the previous findings. The analysis is based on the "Spence-Mirrlees wedge" which corresponds, at each observed gross income level, to a ratio between the marginal tax rate of the individual for whom the bundle is designed and that of his nearest more productive neighbour if he chooses to mimic. Using this wedge, a necessary and sufficient condition for bunching to be optimal is obtained in terms of the primitives of the model, separating optima are characterized geometrically, and comparative statics properties derived, notably with respect to skill levels and individual social weights. It is then shown that the analysis extends to adverse-selection problems where participation constraints replace the tax revenue constraint.
|Date of creation:||12 Oct 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Guesnerie, Roger & Seade, Jesus, 1982.
"Nonlinear pricing in a finite economy,"
Journal of Public Economics,
Elsevier, vol. 17(2), pages 157-179, March.
- Diamond, P., 1994.
"Optimal Income Taxation: An Exemple with a U-Shaped Pattern of Optimal Marginal Tax Rates,"
94-14, Massachusetts Institute of Technology (MIT), Department of Economics.
- Diamond, Peter A, 1998. "Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates," American Economic Review, American Economic Association, vol. 88(1), pages 83-95, March.
- Weymark, John A, 1987. "Comparative Static Properties of Optimal Nonlinear Income Taxes," Econometrica, Econometric Society, vol. 55(5), pages 1165-85, September.
- Jonathan Hamilton & Pierre Pestieau, 2005.
"Optimal Income Taxation and the Ability Distribution: Implications for Migration Equilibria,"
International Tax and Public Finance,
Springer, vol. 12(1), pages 29-45, January.
- HAMILTON, Jonathan & PESTIEAU, Pierre, 2002. "Optimal income taxation and the ability distribution: implications for migration equilibria," CORE Discussion Papers 2002036, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Hellwig, Martin F., 2007.
"The undesirability of randomized income taxation under decreasing risk aversion,"
Journal of Public Economics,
Elsevier, vol. 91(3-4), pages 791-816, April.
- Martin Hellwig, 2005. "The Undesirability of Randomized Income Taxation under Decreasing Risk Aversion," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2005_27, Max Planck Institute for Research on Collective Goods.
- Jan Boone & Lans Bovenberg, 2007.
"The Simple Economics of Bunching: Optimal Taxation with Quasi-Linear Preferences,"
Journal of Public Economic Theory,
Association for Public Economic Theory, vol. 9(1), pages 89-105, 02.
- Boone, J. & Bovenberg, A.L., 2007. "The simple economics of bunching. Optimal taxation with quasi-linear preferences," Other publications TiSEM 85032fa4-f8bb-4885-bb49-3, Tilburg University, School of Economics and Management.
- Weymark, John A., 1986. "A reduced-form optimal nonlinear income tax problem," Journal of Public Economics, Elsevier, vol. 30(2), pages 199-217, July.
- Joseph E. Stiglitz, 1981.
"Self-Selection and Pareto Efficient Taxation,"
NBER Working Papers
0632, National Bureau of Economic Research, Inc.
- BOADWAY, Robin & CUFF, Katherine & MARCHAND, Maurice, .
"Optimal income taxation with quasi-linear preferences revisited,"
CORE Discussion Papers RP
-1466, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Boadway, Robin & Cuff, Katherine & Marchand, Maurice, 2000. " Optimal Income Taxation with Quasi-linear Preferences Revisited," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(4), pages 435-60.
- Robin Boadway & Katherine Cuff & Maurice Marchand, 1999. "Optimal Income Taxation With Quasi-Linear Preferences Revisited," Working Papers 984, Queen's University, Department of Economics.
- Kimball, Miles S, 1990.
"Precautionary Saving in the Small and in the Large,"
Econometric Society, vol. 58(1), pages 53-73, January.
- Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
- Menegatti, Mario, 2001. "On the Conditions for Precautionary Saving," Journal of Economic Theory, Elsevier, vol. 98(1), pages 189-193, May.
- 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.
- Craig Brett & John Weymark, 2007. "The Impact of Changing Skill Levels on Optimal Nonlinear Income Taxes," Vanderbilt University Department of Economics Working Papers 0708, Vanderbilt University Department of Economics.
- Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059, March.
- Richard Blundell, 1992. "Labour supply and taxation: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 13(3), pages 15-40, January.
- Jean-Jacques Laffont, 1989. "The Economics of Uncertainty and Information," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121360, June.
- 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.
- Ebert, Udo, 1992. "A reexamination of the optimal nonlinear income tax," Journal of Public Economics, Elsevier, vol. 49(1), pages 47-73, October.
- Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, vol. 7(2), pages 203-235, April.
- 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.
When requesting a correction, please mention this item's handle: RePEc:hhs:uufswp:2009_011. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Katarina Grönvall)
If references are entirely missing, you can add them using this form.