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The Pareto-Frontier in a simple Mirrleesian model of income taxation

Author

Listed:
  • Felix Bierbrauer

    (Max Planck Institute for Research on Collective Goods, Bonn)

  • Pierre C. Boyer

    (Toulouse School of Economics (GREMAQ) and EHESS)

Abstract

We characterize the Pareto-frontier in a simple Mirrleesian model of income taxation. We show how the second-best frontier which incorporates incentive constraints due to private information on productive abilities relates to the first-best frontier which takes only resource constraints into account. In particular, we argue that the second-best frontier can be interpreted as a Laer-curve. We also use this second-best frontier for a comparative statics analysis of how optimal income tax rates vary with the degree of inequity aversion, and for a characterization of optimal public-good provision. We show that a more inequity averse policy maker chooses tax schedules that are more redistributive and involve higher marginal tax rates, but chooses a lower public-goods provision level.

Suggested Citation

  • Felix Bierbrauer & Pierre C. Boyer, 2010. "The Pareto-Frontier in a simple Mirrleesian model of income taxation," Discussion Paper Series of the Max Planck Institute for Behavioral Economics 2010_16, Max Planck Institute for Behavioral Economics.
    • Handle: RePEc:mpg:wpaper:2010_16
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    Cited by:

    1. Andrea Attar & Thomas Mariotti & François Salanié, 2020. "The Social Costs of Side Trading," The Economic Journal, Royal Economic Society, vol. 130(630), pages 1608-1622.
    2. Alain Trannoy, 2019. "Talent, equality of opportunity and optimal non-linear income tax," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 17(1), pages 5-28, March.
    3. Rafael Aigner, 2014. "Environmental Taxation and Redistribution Concerns," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(2), pages 249-277, June.
    4. Felix Bierbrauer, 2010. "On the Optimality of Optimal Income Taxation," CESifo Working Paper Series 3163, CESifo.
    5. Felix Bierbrauer, 2016. "Effizienz oder Gerechtigkeit? Ungleiche Einkommen, ungleiche Vermögen und die Theorie der optimalen Besteuerung," Discussion Paper Series of the Max Planck Institute for Behavioral Economics 2016_03, Max Planck Institute for Behavioral Economics.
    6. Felix J. Bierbrauer & Pierre C. Boyer & Emanuel Hansen, 2023. "Pareto‐Improving Tax Reforms and the Earned Income Tax Credit," Econometrica, Econometric Society, vol. 91(3), pages 1077-1103, May.
    7. Soldatos, Gerasimos T., 2015. "Tax Aversion, Laffer Curve, and the Self-financing of Tax Cuts," MPRA Paper 62470, University Library of Munich, Germany.
    8. Felix J. Bierbrauer, 2014. "Optimal Tax and Expenditure Policy with Aggregate Uncertainty," American Economic Journal: Microeconomics, American Economic Association, vol. 6(1), pages 205-257, February.
    9. Bierbrauer, Felix J. & Boyer, Pierre C., 2013. "Political competition and Mirrleesian income taxation: A first pass," Journal of Public Economics, Elsevier, vol. 103(C), pages 1-14.
    10. Soldatos, Gerasimos T., 2015. "An Anti-Austerity Policy Recipe against Debt Accumulation in the Presence of Hidden Economy," MPRA Paper 69911, University Library of Munich, Germany.

    More about this item

    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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