Advertisement

International Tax and Public Finance

, Volume 17, Issue 3, pp 259–270 | Cite as

On optimal non-linear income taxation: numerical results revisited

  • Matti TuomalaEmail author
Article

Abstract

We use the standard Mirrlees (Review of Economics Studies 38:175–208, 1971) structure, but replace the utility functions used in previous simulations with a quadratic utility of consumption with a bliss point. This greatly reduces the curvature of the utility function over consumption. Our simulations demonstrate that this would then lead to an increasing marginal tax rate structure over a wide range of wage levels.

Keywords

Optimal nonlinear tax Numerical simulations 

JEL Classification

H21 D63 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Aaberge, R., & Colombino, U. (2006). Designing optimal taxes with a microeconometric model of household labour supply. IZA, DP No. 2468. Google Scholar
  2. Aitchison, J., & Brown, J. A. C. (1957). The lognormal distribution with special reference to its uses in economics. Cambridge: Cambridge University Press. Google Scholar
  3. Atkinson, A. B. (1972). Maximin and optimal income taxation. Discussion paper no. 47, University of Essex. Google Scholar
  4. Atkinson, A. B., & Stiglitz, J. (1980). Lectures on public economics. New York: McGraw Hill. Google Scholar
  5. Atkinson, A. B. (1990). Public economics and the economic public. European Economic Review, 34, 225–248. CrossRefGoogle Scholar
  6. Atkinson, A. B. (1995). Public economics in action, the basic income/flat tax proposal, The Lindahl Lectures. Oxford: Oxford University Press. Google Scholar
  7. Bevan, D. (2003). Optimum income taxation when earnings are imperfectly correlated with productivity. In R. Arnott, B. Greenwald, R. Kanbur, B. Nalebuff (Eds.), Economics for an imperfect world. Essays in honor of Joseph E. Stiglitz (pp. 405–418). Google Scholar
  8. Blundell, R., Duncan, A., McCrae, J., & Meghir, C. (1999). Evaluating in-work reform: the working families’ tax credit in the UK. Unpublished paper. Google Scholar
  9. Blundell, R., & MaCurdy, T. (1999). Labour supply: A review of alternative approaches, Handbook of Labour Economics. Amsterdam: North-Holland. Google Scholar
  10. Blundell, R. (2000). Work incentives and ‘in-work’ benefit reform: a review. Oxford Review of Economic Policy, 16(1), 27–44. CrossRefGoogle Scholar
  11. Boadway, R., Cuff, K., & Marschand, M. (2000). Optimal income taxation with quasi-linear preferences revisited. Journal of Public Economic Theory. Google Scholar
  12. Chetty, R. (2006). A new method of estimating risk aversion. American Economic Review, 96(5), 1821–1834. CrossRefGoogle Scholar
  13. Diamond, P. (1998). Optimal income taxation: an example with a U-shaped pattern of optimal marginal tax rates. American Economic Review, 88(1), 83–95. Google Scholar
  14. Dahan, M., & Strawczynski, M. (2000). The optimal non-linear income tax. American Economic Review, 90(3), 681–686. CrossRefGoogle Scholar
  15. Gruber, J., & Saez, E. (2002). The elasticity of taxable income: evidence and implications. Journal of Public Economics, 84, 1–32. CrossRefGoogle Scholar
  16. Kaplow, L. (2004). Concavity of utility, concavity of welfare and redistribution of income. NBER working paper no. 10005. Google Scholar
  17. Kaplow, L. (2006). Optimal income transfers. International Tax and Public Finance, 14(3), 295–326. CrossRefGoogle Scholar
  18. Kanbur, R., & Tuomala, M. (1994). Inherent inequality and the optimal graduation of marginal tax rates. Scandinavian Journal of Economics, 96(2), 275–282. CrossRefGoogle Scholar
  19. Keane, M., & Moffitt, R. (1998). A structural model of multiple welfare program participation and labour supply. International Economic Review, 39(3), 553–589. CrossRefGoogle Scholar
  20. Mirrlees, J. A. (1971). An exploration in the theory of optimum income taxation. Review of Economic Studies, 38, 175–208. CrossRefGoogle Scholar
  21. Mirrlees, J. A. (1976). Optimal tax theory, a synthesis. Journal of Public Economics, 6, 327–358. CrossRefGoogle Scholar
  22. Low, H., & Maldoon, D. (2004). Optimal taxation, prudence and risk-sharing. Journal of Public Economics. Google Scholar
  23. Revesz, J. (1989). The optimal taxation of labour income. Public Finance, 44, 453–475. Google Scholar
  24. Roberts, K. (2000). A reconsideration of optimal income tax. In P. Hammond, & G. Myles (Eds.), Incentives, organization and public economics. Papers in Honour of Sir James Mirrlees. Oxford: Oxford University Press. Google Scholar
  25. Röed, K., & Ström, S. (2002). Progressive taxes and the labour market: Is the trade-off between equality and efficiency inevitable? Journal of Economic Surveys, 16(1). Google Scholar
  26. Saez, E. (2001). Using elasticities to derive optimal income tax rates. Review of Economic Studies, 68, 205–229. CrossRefGoogle Scholar
  27. Stern, N. (1986). On the specification of labour supply functions. In R. Blundell, & I. Walker (Eds.), Unemployment, search and labour supply. Cambridge: Cambridge University Press. Google Scholar
  28. Tuomala, M. (1984). On the optimal income taxation: some further numerical results. Journal of Public Economics, 23, 351–366. CrossRefGoogle Scholar
  29. Tuomala, M. (1990). Optimal income tax and redistribution. Oxford: Clarendon Press. Google Scholar
  30. Zelenak, L., & Moreland, K. (1999). Can the graduated income tax survive optimal tax analysis? Working paper no. 149, The Center for Law and Economic Studies, Columbia University, School of Law. Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of TampereTampereFinland

Personalised recommendations