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Optimal Income Taxation With Quasi‐Linear Preferences Revisited

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  • Robin Boadway
  • Katherine Cuff
  • Maurice Marchand

Abstract

Properties of the optimal income tax for quasi‐linear in leisure preferences are studied. With utilitarian or maxi‐min objectives, closed‐form solutions are obtained. Bunching occurs over intervals where the second‐order incentive condition is binding. Whether this occurs depends solely on the skill distribution. The patterns of consumption and tax rates in the nonbunched range are independent of whether the second‐order incentive constraints are binding. Bunching at the bottom can also occur if a non‐negative constraint on incomes is binding for some households. The pattern of marginal tax rates depends on the skill distribution and whether it is truncated.

Suggested Citation

  • Robin Boadway & Katherine Cuff & Maurice Marchand, 2000. "Optimal Income Taxation With Quasi‐Linear Preferences Revisited," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(4), pages 435-460, October.
    • Handle: RePEc:bla:jpbect:v:2:y:2000:i:4:p:435-460
    DOI: 10.1111/1097-3923.00045
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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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