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Higher Tax for Top Earners

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  • Jim Jin
  • Felix FitzRoy

Abstract

The literature can justify increasing and decreasing marginal taxes (IMT & DMT) on top income under different social objectives and income distributions. Even if DMT are optimal, they are often politically infeasible. Then a flat tax seems to be a constrained optimal solution. We show however that, if we want to maximize the utility of a poor majority any flat tax can be inferior to some IMT. We provide a sufficient condition for (two-band) IMT to dominate any flat tax and further generalize this result to allow different welfare weights, declining elasticity of labour supply and more tax bands.

Suggested Citation

  • Jim Jin & Felix FitzRoy, 2017. "Higher Tax for Top Earners," Discussion Paper Series, Department of Economics 201702, Department of Economics, University of St. Andrews, revised 17 Feb 2017.
  • Handle: RePEc:san:wpecon:1702
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    References listed on IDEAS

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    Cited by:

    1. Corneo, Giacomo, 2018. "Time-poor, working, super-rich," European Economic Review, Elsevier, vol. 101(C), pages 1-19.

    More about this item

    Keywords

    flat tax; increasing marginal taxes; income redistribution;

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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