 Externalities and Optimal Taxation: A Progressive Tax CaseMPRA Paper from University Library of Munich, Germany Abstract: The paper studies the optimal income taxation by adding utility interdependence over labour choice. Both theoretically and numerically, it is shown that the optimal marginal tax schedule could be progressive with this additional feature. Previous studies on optimal redistributive income taxation consider the consumption externalities but ignore the labour interdependency. Specifically, if disutility depends on the average working hour, the increase in an agent’s working hour creates positive externality on other agents as it lowers the disutility of others. It is shown that as the degree of utility interdependence increases, the tax schedule becomes more progressive. Moreover, the paper analyses the effect of having a more dispersed skill distribution on the marginal income tax rates. By using their wage distribution data as a proxy for their ability distribution, the optimal marginal tax rates in the United Kingdom and the Czech Republic are examined. Considering the more unequal wage distribution in the UK, there should be a more progressive tax schedule. Keywords: Optimal Income Tax; Externalities (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:104847 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.