Optimal income taxation without tax evasion

Thomas Aronsson () and Fei Xu ()
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Thomas Aronsson: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden, https://www.umu.se/handelshogskolan
Fei Xu: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden, https://www.umu.se/handelshogskolan

No 1020, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: This paper is the first to integrate corruption with respect to tax collection in a Mirrleesian model of optimal redistributive taxation. The analysis starts with a simple two-type model, showing that the optimal marginal tax structure resembles that of the original Stiglitz (1982) model, albeit for different reasons. We also extend the analysis to a framework with many types and present policy rules for marginal taxation over the whole ability distribution. The marginal income tax rates are all non-negative and can be expressed in terms of two key determinants: the distributional weights attached to taxpayers, and how the private cost to evade taxes varies with the taxpayers’ income. Finally, we consider the role of government expenditures directly targeting the incentives of the tax collector, such that these public expenditures and the optimal tax structure are implemented simultaneously.

Keywords: Redistribution; taxation; corruption (search for similar items in EconPapers)
JEL-codes: D73 H21 H26 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2023-12-18, Revised 2024-10-24
New Economics Papers: this item is included in nep-acc, nep-iue, nep-pbe and nep-pub
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