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Linearity of the Optimal Income Tax: A Generalization

Kramer, Gerald H. and Snyder, James M., Jr. (1984) Linearity of the Optimal Income Tax: A Generalization. Social Science Working Paper, 534. California Institute of Technology , Pasadena, CA. (Unpublished)

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In an earlier paper, we examined the nature of individual and collective preferences over alternative income tax schedules in the context of a simple model in which individuals respond to high tax rates by working in an untaxed "sheltered" sector of the economy. There we established the social optimality of a linear income tax among the set of tax schedules that are continuous, nondecreasing convex functions of income. Here we relax the restrictions on tax schedules, most importantly allowing schedules to have concave (decreasing marginal tax rate) as well as convex (increasing marginal tax rate) regions. In fact, we prove that a linear income tax is socially preferred to any nonlinear lower semi-continuous tax schedule.

Item Type:Report or Paper (Working Paper)
Group:Social Science Working Papers
Series Name:Social Science Working Paper
Issue or Number:534
Record Number:CaltechAUTHORS:20170919-144337163
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:81581
Deposited By: Jacquelyn Bussone
Deposited On:19 Sep 2017 21:51
Last Modified:03 Oct 2019 18:44

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