Optimality conditions and comparative static properties of non-linear income taxes revisited

Pre-print, Working paper: Optimality conditions and comparative static properties of the optimal Mirrleesian nonlinear income tax are obtained for a finite population and quasilinear-in-consumption preferences. Contrary to Weymark (1987) who considers quasilinear-in-leisure preferences, the linearity with respect to gross income, which is observed by the government and used as a tax base, is lost. A reduced-form optimal income tax problem is derived, in which consumption levels are obtained as functions of gross incomes. The contribution of this new reduced form is twofold. First, the optimal allocation can be characterized geometrically in a simple way. Second, comparative static results with respect to individual productivities are easy to obtain.

Author(s)

Laurent Simula

Date of publication
  • 2007
Keywords JEL
H21 H31
Keywords
  • Optimal tax
  • Income tax
  • Comparative statics
Internal reference
  • PSE Working Papers n°2007-15
Version
  • 1