Optimal Labor Income Taxation - The Role of the Skill Distribution

Dingquan Miao ()

No 823, LIS Working papers from LIS Cross-National Data Center in Luxembourg

Abstract: I analyze the role of the distribution of skills in shaping optimal nonlin-ear income tax schedules. I use theoretical skill distributions as well as empirical skill distributions for 14 OECD countries. I find that a more dispersed log-normal skill distribution implies a more progres-sive optimal tax schedule. Optimal tax rates should be lower through-out if a greater number of unskilled agents cluster at the bottom, and the scheme is more progressive if a greater number of agents locate at the top. I also highlight how the impact of the skill distribution is affected by the form of the social welfare function and the utility function. The findings using empirical skill distributions suggest that the results are sensitive to the type of statistical estimator used to estimate the skill distribution.

JEL-codes: H21 J24 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2022-01
New Economics Papers: this item is included in nep-lma, nep-pbe, nep-pub and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:lis:liswps:823

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