Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/155543 
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper No. 6301
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We characterize the second-best allocation in a Mirrleesian optimal tax model where agents differ in multiple dimensions and the planner can tax multiple goods non-linearly. We develop a new method that allows us to solve the partial differential equations that describe the optimum regardless of the dimensionality of the problem. We derive four theoretical properties of the optimum. First, the optimal tax system is described by a multidimensional version of Diamond’s (1998) and Saez’ (2001) ABC-formula. Second, the Atkinson-Stiglitz theorem does not generalize to settings where the planner screens in multiple dimensions. Third, the optimal marginal tax rate on each good depends on the consumption level of multiple goods. Fourth, a no-distortion at the top/bottom result continues to hold. A calibrated simulation on taxation of couples shows a strong positive relationship between an individual’s optimal marginal tax rate and the income earned by his spouse.
Subjects: 
optimal non-linear taxation
redistribution
tax system
multi-dimensional screening
JEL: 
C63
D82
H21
H24
Document Type: 
Working Paper
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