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Reinterpreting the Frisch parameter in the field of personal taxation: A link between taxable capacity and social marginal utility in Optimal Taxation

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  • Faíña, Andrés
  • López-Rodríguez, Jesús
  • Varela-Candamio, Laura

Abstract

We give an objective meaning to the concept of taxable capacity and establish a theoretical link between Optimal Taxation Theory (OTT) and the proposals of the Carter and Meade Reports, solving at the same time Kay’s (2008) criticism to both approaches.

Suggested Citation

  • Faíña, Andrés & López-Rodríguez, Jesús & Varela-Candamio, Laura, 2013. "Reinterpreting the Frisch parameter in the field of personal taxation: A link between taxable capacity and social marginal utility in Optimal Taxation," Economics Letters, Elsevier, vol. 118(1), pages 81-83.
    • Handle: RePEc:eee:ecolet:v:118:y:2013:i:1:p:81-83
    DOI: 10.1016/j.econlet.2012.09.030
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    References listed on IDEAS

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    1. Heij, Christiaan & de Boer, Paul & Franses, Philip Hans & Kloek, Teun & van Dijk, Herman K., 2004. "Econometric Methods with Applications in Business and Economics," OUP Catalogue, Oxford University Press, number 9780199268016.
    2. de Boer, P.M.C., 2009. "Modeling household behavior in a CGE model: linear expenditure system or indirect addilog?," Econometric Institute Research Papers EI 2009-16, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    3. Somermeyer, W. H. & Langhout, A., 1972. "Shapes of Engel curves and demand curves: Implications of the expenditure allocation model, applied to Dutch data," European Economic Review, Elsevier, vol. 3(3), pages 351-386, November.
    4. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
    5. Mikhail Golosov & Maxim Troshkin & Aleh Tsyvinski, 2011. "Optimal Taxation: Merging Micro and Macro Approaches," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(s1), pages 147-174, August.
    6. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-278, June.
    7. Daron Acemoglu & Mikhail Golosov & Aleh Tsyvinski, 2010. "Dynamic Mirrlees Taxation under Political Economy Constraints," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(3), pages 841-881.
    8. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
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    More about this item

    Keywords

    Frisch parameter; Taxable capacity; Social marginal utility; Optimal taxation;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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