Sufficient Statistics for Nonlinear Tax Systems with General Across-income Heterogeneity

Arbeitspapier

This paper provides general and empirically implementable sufficient statistics formulas for optimal nonlinear tax systems in the presence of across-income heterogeneity in preferences, inheritances, income-shifting capabilities, and other sources. We study unrestricted tax systems on income and savings (or other commodities) that implement the optimal direct-revelation mechanism, as well as simpler tax systems that impose common restrictions like separability between earnings and savings taxes. We characterize the optimum using familiar elasticity concepts and a sufficient statistic for general across-income heterogeneity: the difference between the cross-sectional variation of savings with income, and the causal effect of income on savings. The Atkinson-Stiglitz Theorem is a knife-edge case corresponding to zero difference, and a number of other key results in optimal tax theory are subsumed as special cases. We provide tractable extensions of these results that include multidimensional heterogeneity, additional efficiency rationales for taxing heterogeneous returns, and corrective motives to encourage more saving. Applying these formulas in a calibrated model of the U.S. economy, we find that the optimal savings tax is positive and progressive.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper ; No. 360

Classification and Topics

• Classification: Wirtschaft ; Allocative Efficiency; Cost-Benefit Analysis ; Taxation and Subsidies: Efficiency; Optimal Taxation ; Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ferey, Antoine ; Lockwood, Benjamin ; Taubinsky, Dmitry
• Event: Veröffentlichung
• (who): Ludwig-Maximilians-Universität München und Humboldt-Universität zu Berlin, Collaborative Research Center Transregio 190 - Rationality and Competition
• (where): München und Berlin
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/282052
• Last update: 10.03.2025, 11:42 AM CET