Arbeitspapier
Marginal deadweight loss when the income tax is nonlinear
Almost all theoretical work on how to calculate the marginal deadweight loss has been done for linear taxes and for variations in linear budget constraints. This is quite surprising since most income tax systems are nonlinear, generating nonlinear budget constraints. Instead of developing the proper procedure to calculate the marginal deadweight loss for variations in nonlinear income taxes a common procedure has been to linearize the nonlinear budget constraint and apply methods that are correct for variations in a linear income tax. Such a procedure leads to incorrect results. The main purpose of this paper is to show how to correctly calculate the marginal deadweight loss when the income tax is nonlinear. A second purpose is to evaluate the bias in results that obtains when the traditional linearization procedure is used. We perform calculations based on the 2006 US tax system and find that the relative deadweight loss caused by increasing existing tax rates is large but less than half of Feldstein's (1999) estimates for the 1994 tax system.
- Language
-
Englisch
- Bibliographic citation
-
Series: CESifo Working Paper ; No. 3053
- Classification
-
Wirtschaft
Taxation and Subsidies: Efficiency; Optimal Taxation
Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
Fiscal Policies and Behavior of Economic Agents: Household
Allocative Efficiency; Cost-Benefit Analysis
- Subject
-
deadweight loss
taxable income
nonlinear budget constraint
Einkommensteuer
Excess Burden
Grenzsteuersatz
Optimale Besteuerung
Theorie
USA
- Event
-
Geistige Schöpfung
- (who)
-
Blomquist, Sören
Simula, Laurent
- Event
-
Veröffentlichung
- (who)
-
Center for Economic Studies and ifo Institute (CESifo)
- (where)
-
Munich
- (when)
-
2010
- Handle
- Last update
- 10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Blomquist, Sören
- Simula, Laurent
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2010
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