Arbeitspapier
On the optimal progressivity of the income tax code
This paper computes the optimal progressivity of the income tax code in a dynamic general equilibrium model with household heterogeneity in which uninsurable labor productivity risk gives rise to a nontrivial income and wealth distribution. A progressive tax system serves as a partial substitute for missing insurance markets and enhances an equal distribution of economic welfare. These beneficial effects of a progressive tax system have to be traded off against the efficiency loss arising from distorting endogenous labor supply and capital accumulation decisions. Using a utilitarian steady state social welfare criterion we find that the optimal US income tax is well approximated by a flat tax rate of 17:2% and a fixed deduction of about $9,400. The steady state welfare gains from a fundamental tax reform towards this tax system are equivalent to 1:7% higher consumption in each state of the world. An explicit computation of the transition path induced by a reform of the current towards the optimal tax system indicates that a majority of the population currently alive (roughly 62%) would experience welfare gains, suggesting that such fundamental income tax reform is not only desirable, but may also be politically feasible.
- Language
-
Englisch
- Bibliographic citation
-
Series: CFS Working Paper ; No. 2005/10
- Classification
-
Wirtschaft
Fiscal Policy
Taxation and Subsidies: Efficiency; Optimal Taxation
Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- Subject
-
Progressive Taxation
Optimal Taxation
Flat Taxes
Social Insurance
Transition
Steuerprogression
Einkommensteuer
Optimale Besteuerung
Sozialversicherung
Allgemeines Gleichgewicht
USA
- Event
-
Geistige Schöpfung
- (who)
-
Conesa, Juan Carlos
Krueger, Dirk
- Event
-
Veröffentlichung
- (who)
-
Goethe University Frankfurt, Center for Financial Studies (CFS)
- (where)
-
Frankfurt a. M.
- (when)
-
2005
- Handle
- URN
-
urn:nbn:de:hebis:30-10855
- Last update
- 10.03.2025, 11:44 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
- Conesa, Juan Carlos
- Krueger, Dirk
- Goethe University Frankfurt, Center for Financial Studies (CFS)
Time of origin
- 2005
Other Objects (12)
On the optimal progressivity of the income tax code
The Optimal Income Tax: Restatement and Extensions
Tax avoidance and optimal income tax enforcement
Optimal Income Tax Rates for the Korean Economy
Optimal income taxation with a risky asset: the triple income tax
Optimal Income Taxation with a Risky Asset: The Triple Income Tax
Optimal Income Taxation with a Risky Asset : the Triple Income Tax
Optimal income taxation with tax competition
On The Ambiguous Sign of the Optimal Utilitarian Marginal Income Tax
Capital Income Tax Coordination and the Income Tax Mix
Optimal capital income taxation with tax evasion
Optimal observability in a linear income tax
On the optimal progressivity of the income tax code
The Optimal Income Tax: Restatement and Extensions
Tax avoidance and optimal income tax enforcement
Optimal Income Tax Rates for the Korean Economy
Optimal income taxation with a risky asset: the triple income tax
Optimal Income Taxation with a Risky Asset: The Triple Income Tax
Optimal Income Taxation with a Risky Asset : the Triple Income Tax
Optimal income taxation with tax competition
On The Ambiguous Sign of the Optimal Utilitarian Marginal Income Tax
Capital Income Tax Coordination and the Income Tax Mix
Optimal capital income taxation with tax evasion
Optimal observability in a linear income tax
On the optimal progressivity of the income tax code
The Optimal Income Tax: Restatement and Extensions
Tax avoidance and optimal income tax enforcement
Optimal Income Tax Rates for the Korean Economy
Optimal income taxation with a risky asset: the triple income tax
Optimal Income Taxation with a Risky Asset: The Triple Income Tax
Optimal Income Taxation with a Risky Asset : the Triple Income Tax
Optimal income taxation with tax competition
On The Ambiguous Sign of the Optimal Utilitarian Marginal Income Tax
Capital Income Tax Coordination and the Income Tax Mix
Optimal capital income taxation with tax evasion