TaxSolver: A methodology to realize optimal income tax reform

Mark Verhagen, Menno Schellekens and Michael Garstka

Papers from arXiv.org

Abstract: Across the globe there are growing calls to streamline and improve ever more complex income tax codes. Executing reform has proven difficult. Even when the desired outcomes are clear, the tools to design fitting reforms are lacking. To remedy this, we developed \texttt{TaxSolver}: a methodology to help policymakers realize optimal tax reform. \texttt{TaxSolver} allows policymakers to focus solely on what they aim to achieve with a reform -- like redistributing wealth, incentivizing labor market participation or reducing complexity -- and the guarantees within which reform is acceptable -- like limited fluctuations in taxpayer incomes or shocks to overall tax revenue. Given these goals and fiscal guarantees, \texttt{TaxSolver} finds the optimal set of tax rules that satisfies all the criteria or shows that the set of demands are not mathematically feasible. We illustrate \texttt{TaxSolver} by reforming various simulated examples of tax codes, including some that reflect the complexity and size of a real-world tax system.

Date: 2025-07, Revised 2025-10
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-pub
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