Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/251013 
Year of Publication: 
2022
Series/Report no.: 
Working Paper No. WP 2022-03
Publisher: 
Federal Reserve Bank of Chicago, Chicago, IL
Abstract: 
We study optimal tax design based on the idea that policy-makers face trade-offs between multiple margins of redistribution. Within a Mirrleesian economy with earnings, consumption and retirement savings, we derive a novel formula for optimal income and savings distortions based on redistributional arbitrage. We establish a sufficient statistics representation of the labor income and capital tax rates on top income earners in dynamic environments, which relies on the observed distributions of both income and consumption. Because consumption has a thinner Pareto tail than income, our quantitative results suggest that it is optimal to shift a substantial fraction of the top earners' tax burden from income to savings.
Subjects: 
capital taxation
income taxation
consumption inequality
Personal Income, Wealth, and Their Distributions
Taxation and Subsidies: Efficiency
Optimal Taxation
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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