Using the Discrete Model to Derive Optimal Income Tax Rates

Spencer Bastani

FinanzArchiv: Public Finance Analysis, 2015, vol. 71, issue 1, 106-117

Abstract: I demonstrate how the discrete model of optimum income taxation can be used to derive the structure of optimal income tax rates. I compare simulations of the discrete and continuous models of optimum income taxation under identical circumstances, based on U.S. wage data. The two models produce similar results once the number of types used to represent the skill distribution is sufficiently large. Whether the discrete or the continuous model is used, in order to accurately capture the shape of the optimal schedule of marginal tax rates, a large number of taxpayers should be employed.

Keywords: optimum income taxation; simulations; computational methods (search for similar items in EconPapers)
JEL-codes: C63 H21 H24 (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Using the Discrete Model to Derive Optimal Income Tax Rates (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:mhr:finarc:urn:sici:0015-2218(201503)71:1_106:utdmtd_2.0.tx_2-k

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DOI: 10.1628/001522108X14206439673134

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