On the optimality of optimal income taxation

Felix Bierbrauer (bierbrauer@coll.mpg.de)
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Felix Bierbrauer: Max Planck Institute for Research on Collective Goods, Bonn

No 2010_14, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: The Mirrleesian model of income taxation restricts attention to simple allocation mechanism with no strategic interdependence, i.e., the optimal labor supply of any one individual does not depend on the labor supply of others. It has been argued by Piketty (1993) that this restriction is substantial because more sophisticated mechanisms can reach first-best allocations that are out of reach with simple mechanisms. In this paper, we assess the validity of Piketty's critique in an independent private values model. As a main result, we show that the optimal sophisticated mechanism is a simple mechanism, or, equivalently, a Mirrleesian income tax system.

Keywords: Optimal Income Taxation; Mechanism Design (search for similar items in EconPapers)
JEL-codes: D82 D86 H21 (search for similar items in EconPapers)
Date: 2010-04
New Economics Papers: this item is included in nep-acc, nep-cta, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:mpg:wpaper:2010_14

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