Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/55096 
Year of Publication: 
2011
Series/Report no.: 
IZA Discussion Papers No. 6007
Publisher: 
Institute for the Study of Labor (IZA), Bonn
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: 
Document Type: 
Working Paper

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