Tax Reforms and Multi-Dimensional Screening

Felix J. Bierbrauer (), Pierre Boyer, Andreas Peichl () and Daniel Weishaar
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Felix J. Bierbrauer: University of Cologne
Andreas Peichl: ifo Munich, LMU Munich, CESifo, IHS & IZA

No 401, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: The key question in multi-dimensional screening problems is how prices, incentives, or marginal tax rates in one economic activity should vary with other activities. We develop a theory of tax reforms in a setting with multidimensional heterogeneity amongst agents who take two economic decisions. Our leading application is the taxation of couples who choose an earnings level for each spouse. In our theoretical analysis, we characterize the conditions under which reforms of a given tax system yield Pareto- or welfare improvements. In an empirical application to the US, we quantify the welfare implications of such reforms. We also prove an impossibility result: under assumptions common in the tax perturbation literature, the hypothesis that the given status quo tax is optimal leads to a contradiction. Thus, the perturbation approach cannot be used to characterize a fully optimal tax system.

Keywords: Tax reforms; Multi-dimensional screening; Taxation of Couples; Optimal taxation (search for similar items in EconPapers)
JEL-codes: C72 D72 D82 H21 (search for similar items in EconPapers)
Pages: 145 pages
Date: 2026-04
New Economics Papers: this item is included in nep-acc, nep-mic and nep-pbe
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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_401_2026.pdf First version, 2026 (application/pdf)

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Working Paper: Tax Reforms and Multi-Dimensional Screening (2026)
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:401

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