Tax Reforms and Multi-Dimensional Screening

Felix J. Bierbrauer, Pierre Boyer, Andreas Peichl (), Daniel Weishaar and Felix Bierbrauer

No 12601, CESifo Working Paper Series from CESifo

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)
Date: 2026
New Economics Papers: this item is included in nep-des and nep-pub
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Working Paper: Tax Reforms and Multi-Dimensional Screening (2026)
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