Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/201970
Authors: 
Koehne, Sebastian
Sachs, Dominik
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7744
Abstract: 
We analyze Pareto-efficient tax deduction rules for work-related expenses (e.g. housekeeping services, child care or elderly care). Pareto efficiency dictates a tight rule for how the rate of deductibility should vary with income and expenditures. An immediate implication is a recipe for designing Pareto-improving tax reforms. We apply our theory to housekeeping services in the U.S.: Introducing deduction rules such that between 55% (low expenses) and 85% (high expenses) of housekeeping services can be marginally deducted from taxable income yields a Pareto improvement if combined with a slight increase in marginal tax rates. Nobody is made worse-off and tax revenue increases by 20 Dollars per capita.
Subjects: 
optimal taxation
tax deduction
Pareto-improving tax reform
JEL: 
D82
H21
Document Type: 
Working Paper

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