Resource title

A contribution to the theory of optimal utilitarian income taxation

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Resource description

The paper provides a new proof of the positivity of the optimal marginal income tax, in a more general model, under weaker assumptions. The analysis focusses on the (weakly) relaxed problem in which upward incentive constraints are replaced by a monotonicity condition on consumption. Without upward incentive constraints, nonnegativity of the optimal marginal income tax is straightforward; strict positivity follows from an assumption on the desirability of redistributing leisure. The resulting allocation is incentive compatible, and is optimal for the original income tax problem. The argument is the same for distributions with finitely many types and for a continuous type distribution.

Resource author

Martin Hellwig

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/26877

Resource license

Adapt according to the presented license agreement and reference the original author.