Lower tax for minimum wage earners

    Research output: Working paperDiscussion paper

    1 Downloads (Pure)

    Abstract

    We show that minimum wage earners should pay a lower tax than high earners. Though intuitive, this idea is not supported by the existing literature. The optimal maximin tax curve and two-band taxes are usually decreasing. Since decreasing marginal taxes would be unpopular, by continuity a flat tax seems to be superior to increasing marginal taxes and should be a second best solution. However, using a simple utility function and a general income distribution, we find that lowering the marginal tax for minimum wage earners not only dominates the optimal flat tax under maximin, but also make everyone better off.
    Original languageEnglish
    Place of PublicationSt Andrews
    PublisherUniversity of St Andrews
    Number of pages16
    Publication statusPublished - Feb 2017

    Publication series

    NameSchool of Economics and Finance Discussion Paper
    PublisherUniversity of St Andrews
    No.1703
    ISSN (Print)0962-4031
    ISSN (Electronic)2055-303X

    Keywords

    • Flat tax
    • Income redistribution
    • Maximin
    • Pareto improvement

    Fingerprint

    Dive into the research topics of 'Lower tax for minimum wage earners'. Together they form a unique fingerprint.

    Cite this