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Optimal top marginal tax rates under income splitting for couples

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  • Bach, Stefan
  • Corneo, Giacomo
  • Steiner, Viktor

Abstract

This paper provides formulas for optimal top marginal tax rates when couples are taxed according to income splitting between spouses, consumption is taxed, and the skill distribution is unbounded. Optimal top marginal income tax rates are computed for Germany using a dataset that includes the tax returns of all German top taxpayers. We find that the optimal top marginal tax rate converges to about 2/3 and convergence obtains at income levels that are substantially higher than those currently subject to the actual top tax rate.

Suggested Citation

  • Bach, Stefan & Corneo, Giacomo & Steiner, Viktor, 2011. "Optimal top marginal tax rates under income splitting for couples," Discussion Papers 2011/21, Free University Berlin, School of Business & Economics.
  • Handle: RePEc:zbw:fubsbe:201121
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    Cited by:

    1. Max Löffler & Andreas Peichl & Nico Pestel & Hilmar Schneider & Sebastian Siegloch, 2011. "Einfach ist nicht immer gerecht : eine Mikrosimulationsstudie der Kirchhof-Reform für die Einkommensteuer," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 80(4), pages 147-160.
    2. repec:clr:wugarc:y:2011:v:37i:4p:513 is not listed on IDEAS
    3. repec:eme:ceapzz:s0573-855520140000293006 is not listed on IDEAS
    4. Wilfried Altzinger & Christopher Berka & Stefan Humer & Mathias Moser, 2012. "Die langfristige Entwicklung der Einkommenskonzentration in Österreich, 1957-2009," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 38(1), pages 77-102.
    5. Stefan Bach, 2014. ""Reichensteuer"-Diskussion: Hintergrund und Perspektiven," DIW Roundup: Politik im Fokus 16, DIW Berlin, German Institute for Economic Research.
    6. Normann Lorenz & Dominik Sachs, 2012. "Optimal Participation Taxes and Efficient Transfer Phase-Out," Working Paper Series of the Department of Economics, University of Konstanz 2012-37, Department of Economics, University of Konstanz.
    7. Stefan Bach & Giacomo Corneo & Viktor Steiner, 2013. "Effective Taxation of Top Incomes in Germany," German Economic Review, Verein für Socialpolitik, vol. 14(2), pages 115-137, May.
    8. Dolls, Mathias & Peichl, Andreas & Zimmermann, Klaus F., 2011. "Eine Herausforderung für die G20: Global vereinbarte Schuldenbremsen und transnationale fiskalpolitische Aufsichtsgremien," IZA Standpunkte 45, Institute for the Study of Labor (IZA).
    9. Max Löffler & Andreas Peichl & Nico Pestel & Hilmar Schneider & Sebastian Siegloch, 2012. "Effizient, einfach und gerecht: Ein integriertes System zur Reform von Einkommensteuer und Sozialabgaben," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 13(3), pages 196-213, August.
    10. repec:eee:eecrev:v:101:y:2018:i:c:p:1-19 is not listed on IDEAS
    11. Jakub Boratyński & Jakub Borowski, 2012. "The long-term economic impact of the flat tax in Poland. CGE simulation under alternative assumptions," Bank i Kredyt, Narodowy Bank Polski, vol. 43(3), pages 5-30.
    12. Daianu, Daniel & Kallai, Ella & Lungu, Laurian, 2012. "Tax Policy under the Curse of Low Revenues: The Case of Romania (Part II)," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 143-162, June.
    13. Aron Kiss, 2013. "The optimal top marginal tax rate: Application to Hungary," European Journal of Government and Economics, Europa Grande, vol. 2(2), pages 100-118, December.
    14. Corneo, Giacomo, 2018. "Time-poor, working, super-rich," European Economic Review, Elsevier, vol. 101(C), pages 1-19.
    15. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2015. "Zukunftsfähigkeit in den Mittelpunkt. Jahresgutachten 2015/16," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201516.
    16. Bierbrauer Felix J., 2016. "Effizienz oder Gerechtigkeit?," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(1), pages 2-24, April.
    17. 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 Research on Collective Goods 2016_03, Max Planck Institute for Research on Collective Goods.
    18. 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.

    More about this item

    Keywords

    optimal income taxation; top incomes; German income tax;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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