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Optimal Income Taxation: An Exemple with a U-Shaped Pattern of Optimal Marginal Tax Rates

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  • Diamond, P.

Abstract

Using the Mirrlees optimal income tax model with quasi-linear preferences, the paper examines conditions for marginal tax rates to be rising at high income levels and declining in an interval containing the modal skill. It examines conditions for the marginal tax rate to be higher at a low skill level than at the high skill level with the same density--an argument only holding for skill levels above a cutoff where resources of a worker are marginally of the same value as resources of the government. Data on earnings rates are presented. Copyright 1998 by American Economic Association.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • 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.
  • Handle: RePEc:mit:worpap:94-14
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    Keywords

    income ; tax policy;

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