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On the optimality of optimal income taxation

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  • Felix J., Bierbrauer

Abstract

The Mirrleesian model of income taxation restricts attention to simple allocation mechanism with no strategic interdependence, i.e., the optimal labor supply of any one individual does not depend on the labor supply of others. It has been argued by Piketty (2009) [12] that this restriction is substantial because more sophisticated mechanisms can reach first-best allocations that are out of reach with simple mechanisms. In this paper, we assess the validity of Pikettyʼs critique in an independent private values model. As a main result, we show that the optimal sophisticated mechanism is a simple mechanism, or, equivalently, a Mirrleesian income tax system.

Suggested Citation

  • Felix J., Bierbrauer, 2011. "On the optimality of optimal income taxation," Journal of Economic Theory, Elsevier, vol. 146(5), pages 2105-2116, September.
    • Handle: RePEc:eee:jetheo:v:146:y:2011:i:5:p:2105-2116
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    References listed on IDEAS

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    1. Hellwig, Martin F., 2007. "A contribution to the theory of optimal utilitarian income taxation," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1449-1477, August.
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