Arbeitspapier
Nonlinear Tax Incidence and Optimal Taxation in General Equilibrium
We study the incidence and the optimal design of nonlinear income taxes in a Mirrleesian economy with a continuum of endogenous wages. We characterize analytically the incidence of any tax reform by showing that one can mathematically formalize this problem as an integral equation. For a CES production function, we show theoretically and numerically that the general equilibrium forces raise the revenue gains from increasing the progressivity of the U.S. tax schedule. This result is reinforced in the case of a Translog technology where closer skill types are stronger substitutes. We then characterize the optimum tax schedule, and derive a simple closed-form expression for the top tax rate. The U-shape of optimal marginal tax rates is more pronounced than in partial equilibrium. The joint analysis of tax incidence and optimal taxation reveals that the economic insights obtained for the optimum may be reversed when considering reforms of a suboptimal tax code.
- Language
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Englisch
- Bibliographic citation
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Series: CESifo Working Paper ; No. 6089
- Classification
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Wirtschaft
Taxation, Subsidies, and Revenue: General
Taxation and Subsidies: Efficiency; Optimal Taxation
Taxation and Subsidies: Incidence
- Subject
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nonlinear tax policy
tax incidence
optimal taxation
general equilibrium
- Event
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Geistige Schöpfung
- (who)
-
Sachs, Dominik
Tsyvinski, Aleh
Werquin, Nicolas
- Event
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Veröffentlichung
- (who)
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Center for Economic Studies and ifo Institute (CESifo)
- (where)
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Munich
- (when)
-
2016
- Handle
- Last update
-
10.03.2025, 11:45 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
- Sachs, Dominik
- Tsyvinski, Aleh
- Werquin, Nicolas
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2016
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