Optimal Linear Taxation with Stochastic Incomes

Mark J Mazur

Public Finance = Finances publiques, 1989, vol. 44, issue 1, 31-50

Abstract: This paper characterizes an optimal linear income tax system in an economy where incomes are partly random as being composed of three distinct elements: redistribution, insurance provision, and labor disincentives. The response of the optimal tax rate to changes in the degree of income uncertainty is examined for both the general situation and for some special cases that are analytically tractable. The intuitive result of the optimal income tax rate increasing with increases in uncertainty holds for a number of special cases, but counterexamples are shown to exist where the opposite result holds.

Date: 1989
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Persistent link: https://EconPapers.repec.org/RePEc:pfi:pubfin:v:44:y:1989:i:1:p:31-50

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