EconPapers    
Economics at your fingertips  
 

Mirrlees Meets Diamond-Mirrlees

Florian Scheuer () and Iván Werning

No 5830, CESifo Working Paper Series from CESifo

Abstract: We show that the Diamond and Mirrlees (1971) linear tax model contains the Mirrlees (1971) nonlinear tax model as a special case. In this sense, the Mirrlees model is an application of Diamond-Mirrlees. We also derive the optimal tax formula in Mirrlees from the Diamond-Mirrlees formula. In the Mirrlees model, the relevant compensated crossprice elasticities are zero, providing a situation where an inverse elasticity rule holds. We provide four extensions that illustrate the power and ease of our approach, based on Diamond-Mirrlees, to study nonlinear taxation. First, we consider annual taxation in a lifecycle context. Second, we include human capital investments. Third, we incorporate more general forms of heterogeneity into the basic Mirrlees model. Fourth, we consider an extensive margin labor force participation decision, alongside the intensive margin choice. In all these cases, the relevant optimality condition is easily obtained as an application of the general Diamond-Mirrlees tax formula.

Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (11) Track citations by RSS feed

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp5830.pdf (application/pdf)

Related works:
Working Paper: Mirrlees meets Diamond-Mirrlees (2016) Downloads
Working Paper: Mirrlees meets Diamond-Mirrlees (2016) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5830

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().

 
Page updated 2020-10-14
Handle: RePEc:ces:ceswps:_5830