On Optimal Income Taxation with Heterogenous Work Preferences

Ritva Tarkiainen and Matti Tuomala

No 432, Working Papers from Tampere University, Faculty of Management and Business, Economics

Abstract: This paper considers the problem of optimal income taxation when individuals are assumed to differ with respect to their earnings potential and work preferences. A numerical method for solving this two-dimensional problem has been developed. We assume an additive utility function, and utilitarian social objectives. Rather than solve the first order conditions associated with the problem, we directly compute the best tax function which can be written in terms of a second order B-spline function. Among our findings are that marginal tax rates are higher than one might anticipate, and that very little bunching occurs at the optimum.

Keywords: Non-linear income taxation; heterogenous work preferences; twodimensional population; numerical simulation (search for similar items in EconPapers)
JEL-codes: C63 H21 H24 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2004-08
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Citations: View citations in EconPapers (2)

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http://urn.fi/urn:isbn:951-44-6081-2 First version, 2004 (application/pdf)

Related works:
Journal Article: On optimal income taxation with heterogeneous work preferences (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:tam:wpaper:0432

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