Optimal Piecewise Linear Income Taxation

Patricia Apps (), Ngo Long and Ray Rees

No 6007, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Given its significance in practice, piecewise linear taxation has received relatively little attention in the literature. This paper offers a simple and transparent analysis of its main characteristics. We fully characterize optimal tax parameters for the cases in which budget sets are convex and nonconvex respectively. A numerical analysis of a discrete version of the model shows the circumstances under which each of these cases will hold as a global optimum. We find that, given plausible parameter values and wage distributions, the globally optimal tax system is convex, and marginal rate progressivity increases with rising inequality.

Keywords: taxation; piecewise linear; income (search for similar items in EconPapers)
JEL-codes: H21 H31 J22 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2011-10
New Economics Papers: this item is included in nep-acc, nep-cmp and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published - published in: Journal of Public Economic Theory, 2014, 16 (4), 523-545

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https://docs.iza.org/dp6007.pdf (application/pdf)

Related works:
Journal Article: Optimal Piecewise Linear Income Taxation (2014)
Working Paper: Optimal Piecewise Linear Income Taxation (2011)
Working Paper: Optimal Piecewise Linear Income Taxation (2009)
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