The Personal Income Tax Structure: Theory and Policy

John Creedy

No 1063, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: There is now a large and complex literature on optimal income taxation, within the context of second-best welfare economics. This paper considers the potential role of this analysis in the practical design of direct tax and transfer structures. It is stressed that few results are robust, even in simple models, in view of the important role played by alternative social welfare functions, the nature of the distribution of abilities and the preferences of individuals. In view of these negative results, it is suggested that a range of empirical tax analyses, capturing particular issues, can provide helpful guidance for policy analysts. Numerical illustrations are provided, paying attention to the role of a ‘top’ marginal tax rate applied to higher-income groups. In particular, behavioural microsimulation models can be used to examine marginal direct tax reform. Such models have the advantages of capturing the full extent of population heterogeneity and the complexity of the tax structure.

Keywords: Personal; income; Tax; Structure (search for similar items in EconPapers)
JEL-codes: B3 B30 B31 D3 D30 D39 D6 D60 D69 P42 R23 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2009
New Economics Papers: this item is included in nep-acc and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Chapter: Personal Income Tax Structure: Theory and Policy (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:mlb:wpaper:1063

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