Sufficient Statistics for Nonlinear Tax Systems with General Across-Income Heterogeneity

Antoine Ferey (), Benjamin Lockwood and Dmitry Taubinsky
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Antoine Ferey: ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique
Benjamin Lockwood: The Wharton School - University of Pennsylvania, NBER - The National Bureau of Economic Research
Dmitry Taubinsky: UC Berkeley - University of California [Berkeley] - UC - University of California, NBER - The National Bureau of Economic Research

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Abstract: This paper provides empirically implementable sufficient statistics formulas for optimal nonlinear tax systems in the presence of across-income heterogeneity in preferences, inheritances, income-shifting capabilities, and other sources. We characterize optimal smooth tax systems on income and savings (or other commodities), as well as simpler tax systems. We use familiar elasticity concepts and a novel sufficient statistic for heterogeneity correlated with earnings ability: the difference between across-income variation in savings and the causal effect of income on savings. We apply these formulas to the United States and find that the optimal savings tax is mostly positive and progressive.

Date: 2024-10-01
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Published in American Economic Review, 2024, 114 (10), pp.3206-3249. ⟨10.1257/aer.20221053⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:spmain:hal-05020383

DOI: 10.1257/aer.20221053

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