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Title:Negative marginal tax rates and heterogeneity PDF Logo
Authors:Choné, Philippe
Laroque, Guy
Issue Date:2009
Series/Report no.:IFS working papers 09,12
Abstract:Heterogeneity is likely to be an important determinant of the shape of optimal tax schemes. This article addresses the issue in a model à la Mirrlees with a continuum of agents. The agents differ in their productivities and opportunity costs of work, but their labor supplies depend only on a unidimensional combination of their two characteristics. Conditions are given under which the standard result that marginal tax rates are everywhere non-negative holds. This is in particular the case when work opportunity costs are distributed independently of productivities. But one can also get negative marginal tax rates: economies where negative tax rates are optimal at the bottom of the income distribution are studied, and a numerical illustration is given, based on UK data.
Subjects:optimal taxation
heterogeneity
welfare
JEL:H21
H31
Document Type:Working Paper
Appears in Collections:IFS Working Papers, Institute for Fiscal Studies (IFS)

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