Optimal Tax Theory: A Synthesis

Mirrlees, James A.

doi:10.1093/acprof:oso/9780198295211.003.0011

Cited by 126 publications

(218 citation statements)

References 4 publications

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“…Among others, Mirrlees (1976) and Saez (2002) have argued that goods preferred by the high-ability ought to be taxed as part of an optimal tax policy that seeks to redistribute toward the individuals with (unobservable) low ability. Recently, the logic for taxing goods preferred by those with high ability has been used to argue for positive capital income taxation, for example by Banks and Diamond (2008).…”

Section: Resultsmentioning

confidence: 99%

“…which says that the high-ability agents do not choose to mimic the low-ability agents in the second period 29 Let denote the multiplier on the incentive compatibility constraint (35).…”

Section: Extension: Optimal Capital Taxation When Stochastic Abilitiementioning

confidence: 99%

“…In other words, taxes on goods preferred by high-ability individuals contribute to progressivity and the redistribution of income. The starting point in the literature for this idea is Mirrlees (1976Mirrlees ( , 1986, who shows that goods preferred by the able ought to be taxed. His results are on the ratio of after-tax to pre-tax prices for an individual's marginal purchase of a good, so they impose no linearity or income-independence constraints on optimal taxes.…”

Section: Introductionmentioning

confidence: 99%

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Preference Heterogeneity and Optimal Capital Income Taxation

Golosov

Troshkin

Tsyvinski³

et al. 2010

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We examine a prominent justification for capital income taxation: goods preferred by those with high ability ought to be taxed. In an environment where commodity taxes are allowed to be nonlinear functions of income and consumption, we derive an analytical expression that reveals the forces determining optimal commodity taxation. We then calibrate the model to evidence on the relationship between skills and preferences and extensively examine the quantitative case for taxes on future consumption (saving). In our baseline case of a unit intertemporal elasticity, optimal capital income tax rates are 2% on average and 4.5% on high earners. We find that the intertemporal elasticity of substitution has a substantial effect on optimal capital taxation. If the intertemporal elasticity is one-third, optimal capital income tax rates rise to 15% on average and 23% on high earners; if the intertemporal elasticity is two, optimal rates fall to 0.6% on average and 1.6% on high earners. Nevertheless, in all cases that we consider the welfare gains of using optimal capital taxes are small.

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Section: Resultsmentioning

confidence: 99%

“…which says that the high-ability agents do not choose to mimic the low-ability agents in the second period 29 Let denote the multiplier on the incentive compatibility constraint (35).…”

Section: Extension: Optimal Capital Taxation When Stochastic Abilitiementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Preference Heterogeneity and Optimal Capital Income Taxation

Golosov

Troshkin

Tsyvinski³

et al. 2010

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“…First, Jacobs and Boadway (2014) analyze optimal linear or nonlinear commodity taxes jointly with optimal nonlinear income taxes in the frameworks of Atkinson and Stiglitz (1976) and Mirrlees (1976). They show that the marginal cost of public funds-based on Diamond's social value of income-remains equal to one in the full tax optimum.…”

Section: Implications For Other Public Policiesmentioning

confidence: 99%

The marginal cost of public funds is one at the optimal tax system

Jacobs

2018

Int Tax Public Finance

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This paper develops a Mirrlees framework with skill and preference heterogeneity to analyze optimal linear and nonlinear redistributive taxes, optimal provision of public goods, and the marginal cost of public funds (MCF). It is shown that the MCF equals one at the optimal tax system, for both lump-sum and distortionary taxes, for linear and nonlinear taxes, and for both income and consumption taxes. By allowing for redistributional concerns, the marginal excess burden of distortionary taxes is shown to be equal to the marginal distributional gain at the optimal tax system. Consequently, the modified Samuelson rule should not be corrected for the marginal cost of public funds. Outside the optimum, the marginal cost of public funds for distortionary taxes can be either smaller or larger than one. The findings of this paper have potentially important implications for applied tax policy and social cost-benefit analysis. Keywords

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“…Thus, in assessing the costs and benefits of a revenue-neutral compensated increase in one of the commodity tax rates the policy maker has to consider also the additional effects captured by (7). The term Θ 00 plays exactly this role as it is immediate to recognize that the terms appearing in Θ 00 descend from (7) dividing de u k by dt i and taking into account that in the Lagrangian of the government's problem a multiplier δ is attached to the well-being of the high skilled agents.…”

Section: Propositionmentioning

confidence: 99%

Optimal redistributive taxation when government's and agents' preferences differ

Blomquist

Micheletto

2006

Journal of Public Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Paternalism, merit goods and specific egalitarianism are concepts we sometimes meet in the literature. The thing in common is that the policy maker does not fully respect the consumer sovereignty principle and designs policies according to some other criterion than individuals' preferences. Using the self-selection approach to tax problems developed by Stiglitz (1982) and Stern (1982), the paper provides a characterization of the properties of an optimal redistributive mixed tax scheme in the general case when the government evaluates individuals' well-being using a different utility function than the one maximized by private agents. Terms of use: Documents in EconStor mayJEL Code: H21, H23.

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Optimal Tax Theory: A Synthesis

Abstract: In that case, we have to consider a Lagrangean <3n .

Cited by 126 publications

References 4 publications

Preference Heterogeneity and Optimal Capital Income Taxation

Preference Heterogeneity and Optimal Capital Income Taxation

The marginal cost of public funds is one at the optimal tax system

Optimal redistributive taxation when government's and agents' preferences differ

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