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A Complete Example of an Optimal Two-Bracket Income Tax

Jean-Francois Wen

No 2014-42, Working Papers from Department of Economics, University of Calgary

Abstract: I provide a simple model that is solved analytically to yield tidy expressions for the Pareto efficient tax structures and the optimal two-bracket marginal tax rates. It is for the special case of equally-sized groups of two skill types and no exogenous spending requirements of the government. The results and the exposition give a self-contained treatment of the central ideas of optimal income taxation.

Date: 2014-03-07
New Economics Papers: this item is included in nep-acc and nep-pbe
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