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Title:A contribution to the theory of optimal utilitarian income taxation PDF Logo
Authors:Hellwig, Martin
Issue Date:2005
Series/Report no.:Preprints of the Max Planck Institute for Research on Collective Goods 2005,23
Abstract:The paper provides a new proof of the positivity of the optimal marginal income tax, in a more general model, under weaker assumptions. The analysis focusses on the (weakly) relaxed problem in which upward incentive constraints are replaced by a monotonicity condition on consumption. Without upward incentive constraints, nonnegativity of the optimal marginal income tax is straightforward; strict positivity follows from an assumption on the desirability of redistributing leisure. The resulting allocation is incentive compatible, and is optimal for the original income tax problem. The argument is the same for distributions with finitely many types and for a continuous type distribution.
Subjects:Optimal Income Taxation
Utilitarian Welfare Maximization
Redistribution
JEL:D63
H21
Document Type:Working Paper
Appears in Collections:Preprints of the Max Planck Institute for Research on Collective Goods

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