Tax rates are constant across the income distribution and redistribution is achieved via universal transfers for examplefriedman1962 advocated negative income tax which e ectively combines a lump sum transfer with a constant marginal tax ratemirrlees1971 pioneered the study of optimal tax design in environments with unobservable . This book provides a comprehensive survey of optimal income tax theory following the development of research strategy from the basic mirrlees model through its refinements that examine how optimal tax rates and the shape of tax schedules are affected by new considerations. This book provides a comprehensive survey of optimal income tax theory following the development of research strategy from the basic mirrlees model through to its refinements examining how optimal tax rates and the shape of tax schedules are affected by new considerations optimal tax theory has an important contribution to make to tax policy formation and has become especially pertinent in . Optimal income tax trades o redistribution and e ciency as tax based on wonly not feasiblet 0 at bottom transfer and t 0 further up tax full integration of taxes transfers mirrlees formulas complex only a couple fairly general results. In contrast to much of the optimal income taxation literature we show that optimal redistribution in this environment involves distorting market employment upwards for low net income individuals through negative marginal income taxes or employment subsidies and distorting employment downward for high net income individuals through positive
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