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On Optimal Non-linear Income Taxation: Numerical Results Revisited

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  • Matti Tuomala

    (School of Management, University of Tampere)

Abstract

Based on numerical simulations there seems to be a kind of consensus in the optimal tax literature that the marginal tax rate should fall rather than rise with income. Retaining the same formal structure as in Mirrlees (1971) this paper shows that this consensus is sensitive to a choice of the assumed form of utility of consumption. For the utility function quadratic in consumption optimum tax schedules look rather like those traditionally chosen by governments, i.e. the marginal tax rates rise with income.

Suggested Citation

  • Matti Tuomala, 2003. "On Optimal Non-linear Income Taxation: Numerical Results Revisited," Working Papers 0317, University of Tampere, School of Management, Economics.
  • Handle: RePEc:tam:wpaper:0317
    as

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    File URL: http://urn.fi/urn:isbn:951-44-5774-9
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    References listed on IDEAS

    as
    1. 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 435-460.
    2. Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, vol. 84(1), pages 1-32, April.
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    5. Atkinson, A. B., 1990. "Public economics and the economic public," European Economic Review, Elsevier, vol. 34(2-3), pages 225-248, May.
    6. Louis Kaplow, 2007. "Optimal income transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(3), pages 295-325, June.
    7. Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059.
    8. Rolf Aaberge & Ugo Colombino, 2005. "Designing Optimal Taxes With a Microeconometric Model of Household Labour Supply," Public Economics 0510013, EconWPA.
    9. David Bevan, 2002. "Optimum Income Taxation when Earnings are Imperfectly Correlated with Productivity," Economics Series Working Papers 101, University of Oxford, Department of Economics.
    10. Blundell, Richard & Ham, John & Meghir, Costas, 1987. "Unemployment and Female Labour Supply," Economic Journal, Royal Economic Society, vol. 97(388a), pages 44-64, Supplemen.
    11. Revesz, John T, 1989. "The Optimal Taxation of Labour Income," Public Finance = Finances publiques, , vol. 44(3), pages 453-475.
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    Cited by:

    1. Colombino Ugo & Locatelli Marilena & Narazani Edlira & O'Donoghue Cathal & Isilda Shima, 2008. "Behavioural and Welfare Effects of Basic Income Policies: An A Simulation for European Countries," Department of Economics and Statistics Cognetti de Martiis. Working Papers 200806, University of Turin.
    2. repec:eme:ceapzz:s0573-855520140000293006 is not listed on IDEAS
    3. Rolf Aaberge & Ugo Colombino, 2005. "Designing Optimal Taxes With a Microeconometric Model of Household Labour Supply," Public Economics 0510013, EconWPA.
    4. Bastani, Spencer & Blomquist, Sören & Micheletto, Luca, 2010. "Public Provision of Private Goods, Tagging and Optimal Income Taxation with Heterogeneity in Needs," Working Paper Series, Center for Fiscal Studies 2010:14, Uppsala University, Department of Economics.
    5. Soumyanetra Munshi, 2011. "On existence of pure strategy equilibrium with endogenous income," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 37(1), pages 1-37, June.
    6. Ugo Colombino & Marilena Locatelli & Edlira Narazani & Cathal O’Donoghue & Isilda Shima, 2008. "Behavioural and Welfare Effects of Basic Income Policies: A Simulation for European Countries," CHILD Working Papers wp03_08, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
    7. Colombino Ugo, 2012. "A microeconometric-computational approach to empirical optimal taxation: outline of a project," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201218, University of Turin.
    8. Spencer Bastani & Sören Blomquist & Luca Micheletto, 2017. "Child Care Subsidies, Quality, and Optimal Income Taxation," CESifo Working Paper Series 6533, CESifo Group Munich.
    9. Hsu, Minchung & Yang, C.C., 2013. "Optimal linear and two-bracket income taxes with idiosyncratic earnings risk," Journal of Public Economics, Elsevier, vol. 105(C), pages 58-71.
    10. Colombino Ugo & Locatelli Marilena & Narazani Edlira & O'Donoghue Cathal, 2010. "Alternative Basic Income Mechanisms: An Evaluation Exercise With a Microeconometric Model," Basic Income Studies, De Gruyter, vol. 5(1), pages 1-31, September.
    11. Rolf Aaberge & Ugo Colombino, 2014. "Labour Supply Models," Contributions to Economic Analysis,in: Handbook of Microsimulation Modelling, volume 127, pages 167-221 Emerald Publishing Ltd.
    12. ISLAM Nizamul & COLOMBINO Ugo, 2018. "The case for NIT+FT in Europe. An empirical optimal taxation exercise," LISER Working Paper Series 2018-08, LISER.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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