Optimal Taxation with Multiple Dimensions of Heterogeneity

Optimal Taxation with Multiple Dimensions of Heterogeneity

This paper develops a general theory of optimal income taxation with multiple dimensions of agent heterogeneity. The main technical hurdle in developing this theory is the possibility that individuals have multiple optimal incomes. Using a perturba...

Full description

Bibliographic Details
Main Authors: Bergstrom, Katy, Dodds, William
Format: Working Paper
Language:English
Published: World Bank, Washington, DC 2021
Subjects:
OPTIMAL TAX
TAXATION
MARGINAL TAX RATE
TAX MODEL
LABOR SUPPLY
PRODUCTIVITY
Online Access:http://documents.worldbank.org/curated/en/812041615228703353/Optimal-Taxation-with-Multiple-Dimensions-of-Heterogeneity
http://hdl.handle.net/10986/35250
id okr-10986-35250
recordtype oai_dc
spelling okr-10986-352502022-09-20T00:10:12Z Optimal Taxation with Multiple Dimensions of Heterogeneity Bergstrom, Katy Dodds, William OPTIMAL TAX TAXATION MARGINAL TAX RATE TAX MODEL LABOR SUPPLY PRODUCTIVITY This paper develops a general theory of optimal income taxation with multiple dimensions of agent heterogeneity. The main technical hurdle in developing this theory is the possibility that individuals have multiple optimal incomes. Using a perturbation approach, optimal tax formulas are derived that account for the possibility that individuals have multiple optima and, hence, account for the possibility that individuals jump between their optimal income levels when the tax schedule is perturbed. The magnitude of these effects is quantified, thereby augmenting the optimal tax formulas from Saez (2001) with additional “jumping effect” terms. The paper provides a partial characterization of when individuals with multiple optimal incomes may exist under the optimal tax schedule. Finally, the paper derives a new methodology to simulate optimal income tax schedules with multidimensional heterogeneity. This method is implemented numerically, showing that individuals with multiple optimal income levels can exist under the optimal tax schedule. 2021-03-11T14:58:34Z 2021-03-11T14:58:34Z 2021-03 Working Paper http://documents.worldbank.org/curated/en/812041615228703353/Optimal-Taxation-with-Multiple-Dimensions-of-Heterogeneity http://hdl.handle.net/10986/35250 English Policy Research Working Paper;No. 9572 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
topic OPTIMAL TAX
TAXATION
MARGINAL TAX RATE
TAX MODEL
LABOR SUPPLY
PRODUCTIVITY
spellingShingle OPTIMAL TAX
TAXATION
MARGINAL TAX RATE
TAX MODEL
LABOR SUPPLY
PRODUCTIVITY
Bergstrom, Katy
Dodds, William
Optimal Taxation with Multiple Dimensions of Heterogeneity
relation Policy Research Working Paper;No. 9572
description This paper develops a general theory of optimal income taxation with multiple dimensions of agent heterogeneity. The main technical hurdle in developing this theory is the possibility that individuals have multiple optimal incomes. Using a perturbation approach, optimal tax formulas are derived that account for the possibility that individuals have multiple optima and, hence, account for the possibility that individuals jump between their optimal income levels when the tax schedule is perturbed. The magnitude of these effects is quantified, thereby augmenting the optimal tax formulas from Saez (2001) with additional “jumping effect” terms. The paper provides a partial characterization of when individuals with multiple optimal incomes may exist under the optimal tax schedule. Finally, the paper derives a new methodology to simulate optimal income tax schedules with multidimensional heterogeneity. This method is implemented numerically, showing that individuals with multiple optimal income levels can exist under the optimal tax schedule.
format Working Paper
author Bergstrom, Katy
Dodds, William
author_facet Bergstrom, Katy
Dodds, William
author_sort Bergstrom, Katy
title Optimal Taxation with Multiple Dimensions of Heterogeneity
title_short Optimal Taxation with Multiple Dimensions of Heterogeneity
title_full Optimal Taxation with Multiple Dimensions of Heterogeneity
title_fullStr Optimal Taxation with Multiple Dimensions of Heterogeneity
title_full_unstemmed Optimal Taxation with Multiple Dimensions of Heterogeneity
title_sort optimal taxation with multiple dimensions of heterogeneity
publisher World Bank, Washington, DC
publishDate 2021
url http://documents.worldbank.org/curated/en/812041615228703353/Optimal-Taxation-with-Multiple-Dimensions-of-Heterogeneity
http://hdl.handle.net/10986/35250
_version_ 1764482641465180160

Similar Items