Locally Optimal Three-Bracket Piecewise Linear Income Taxation

Alan Krause

Discussion Papers from Department of Economics, University of York

Abstract: The aim of this paper is to examine the setting of income tax policy from the perspective faced by governments. The government takes the current income tax schedule as the starting point, and seeks to implement a small change in the tax schedule that is both feasible and desirable. If no such change is possible, the current income tax schedule is said to be locally optimal, because it cannot be improved upon via a small reform. We assume that the current income tax schedule is piecewise linear with three tax brackets, which approximates most real-world income tax schedules. The characteristics of locally-optimal piecewise linear income tax schedules are then derived, with particular attention paid to the extent to which they depart from linearity.

Keywords: piecewise linear income taxation; tax reform (search for similar items in EconPapers)
JEL-codes: H21 H24 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-acc, nep-ore, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:yor:yorken:18/02

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