Higher tax for top earners

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    Abstract

    The literature can justify both increasing and decreasing marginal taxes (IMT & DMT) on top incomes under different welfare objectives and income distributions. Even when DMT are theoretically optimal, they are often politically infeasible. Then a flat tax seems to be a constrained optimal solution. We show however that, given any flat tax we can increase the total utility of a poor majority by raising the top income tax rate under a simple condition, which can be checked with empirical data. We further generalize our main results allowing different welfare weights, declining elasticity of labor supply and more tax bands.
    Original languageEnglish
    Pages (from-to)121-136
    Number of pages16
    JournalJournal of Economics
    Volume122
    Issue number2
    Early online date10 Jul 2017
    DOIs
    Publication statusPublished - Oct 2017

    Keywords

    • Flat tax
    • Piecewise linear taxes
    • Income redistribution

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