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Title:Optimal piecewise linear income taxation PDF Logo
Authors:Apps, Patricia
Long, Ngo Van
Rees, Ray
Issue Date:2011
Series/Report no.:Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 6007
Abstract:Given its significance in practice, piecewise linear taxation has received relatively little attention in the literature. This paper offers a simple and transparent analysis of its main characteristics. We fully characterize optimal tax parameters for the cases in which budget sets are convex and nonconvex respectively. A numerical analysis of a discrete version of the model shows the circumstances under which each of these cases will hold as a global optimum. We find that, given plausible parameter values and wage distributions, the globally optimal tax system is convex, and marginal rate progressivity increases with rising inequality.
Subjects:piecewise linear
income, taxation
JEL:H21
H31
J22
Persistent Identifier of the first edition:urn:nbn:de:101:1-201110263452
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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