Pareto-Improving Reforms of Tax Deductions

Sebastian Koehne and Dominik Sachs

No 7868, CESifo Working Paper Series from CESifo

Abstract: We analyze Pareto-efficient tax deduction rules for work-related expenses. Pareto efficiency dictates a strict rule for marginal deductions along the income distribution. An immediate implication is a recipe for designing Pareto-improving reforms. We apply our theory and simulate a Pareto-improving reform that introduces deductions for non-care household services (housekeeping, gardening, laundry) in the United States. The reform combines marginal deduction rates for household services between 55% and 85% with a slight increase in marginal tax rates.

Keywords: optimal taxation; tax deduction; Pareto-improving tax reform (search for similar items in EconPapers)
JEL-codes: D82 H21 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-pbe
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Related works:
Journal Article: Pareto-improving reforms of tax deductions (2022)
Working Paper: Pareto-Improving Reforms of Tax Deductions (2020)
Working Paper: Pareto-improving reforms of tax deductions (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7868

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