Lower tax for minimum wage earners

    Research output: Working paperDiscussion paper

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    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
    ISSN (Print)0962-4031
    ISSN (Electronic)2055-303X


    • Flat tax
    • Income redistribution
    • Maximin
    • Pareto improvement


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