A Contribution to the Theory of Optimal Utilitarian Income Taxation

Martin Hellwig

No 2005_23, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: The paper provides a new proof of the positivity of the optimal marginal income tax, in a more general model, under weaker assumptions. The analysis focusses on the (weakly) relaxed problem in which upward incentive constraints are replaced by a monotonicity condition on consumption. Without upward incentive constraints, nonnegativity of the optimal marginal income tax is straightforward; strict positivity follows from an assumption on the desirability of redistributing leisure. The resulting allocation is incentive compatible, and is optimal for the original income tax problem. The argument is the same for distributions with finitely many types and for a continuous type distribution.

Keywords: Optimal Income Taxation; Utilitarian Welfare Maximization; Redistribution (search for similar items in EconPapers)
JEL-codes: D63 H21 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2005-11
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: A contribution to the theory of optimal utilitarian income taxation (2007)
Working Paper: A Contribution to the Theory of Optimal Utilitarian Income Taxation (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:mpg:wpaper:2005_23

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