Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/84166 
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper No. 4399
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We characterize the Pareto-frontier in a simple Mirrleesian model of income taxation. We show how the second-best frontier which incorporates incentive constraints due to private information on productive abilities relates to the first-best frontier which takes only resource constraints into account. In particular, we argue that the second-best frontier can be interpreted as a Laffer-curve. We also use this second-best frontier for a comparative statics analysis of how optimal income tax rates vary with the degree of inequity aversion, and for a characterization of optimal public-good provision. We show that a more inequity averse policy maker chooses tax schedules that are more redistributive and involve higher marginal tax rates, while simultaneously providing less public good.
Subjects: 
optimal income taxation
Laffer-curve
public-good provision
JEL: 
H21
H41
D82
Document Type: 
Working Paper
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