Higher tax morale implies a higher optimal income tax rate

Andras Simonovits ()
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Andras Simonovits: Institute of Economics of the Hungarian Academy of Sciences also Institute of Mathematics, Budapest University of Technology and Economics also Department of Economics, CEU

No 1137, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: We analyze the impact of (exogenous) tax morale on the optimal design of progressive income taxation. In our model, only universal basic income (transfer) is financed from a linear income tax and the financing of public goods is neglected. Each individual supplies labor and (un)declares earning, depending on his labor disutility and tax morale, respectively. Limiting the utilitarianism to the poorer parts of the population (defined by the welfare share), the optimal tax rate is an increasing function of the tax morale and a decreasing function of the welfare share.

Keywords: tax morale; progressive income tax; undeclared earning; labor supply; income redistribution (search for similar items in EconPapers)
JEL-codes: D58 H21 H26 H41 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2011-09
New Economics Papers: this item is included in nep-acc, nep-iue, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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