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Higher tax for top earners

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Abstract

The literature can justify both increasing and decreasing marginal taxes (IMT & DMT) on top incomes under different welfare objectives and income distributions. Even when DMT are theoretically optimal, they are often politically infeasible. Then a flat tax seems to be a constrained optimal solution. We show however that, given any flat tax we can increase the total utility of a poor majority by raising the top income tax rate under a simple condition, which can be checked with empirical data. We further generalize our main results allowing different welfare weights, declining elasticity of labor supply and more tax bands.
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Details

Original languageEnglish
Pages (from-to)121-136
Number of pages16
JournalJournal of Economics
Volume122
Issue number2
Early online date10 Jul 2017
DOIs
Publication statusPublished - Oct 2017

    Research areas

  • Flat tax, Piecewise linear taxes, Income redistribution

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