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The rise or fall of graduated income tax rates

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  • Kemper Moreland

Abstract

This study constructs a wage distribution for the US from CPS data and then uses simulations to determine the optimal piecewise-linear-income tax. Previous optimal tax studies have generally found optimal marginal tax rates decline as income rises. This study argues this result arises because these previous studies assume that society will be willing to fund substantial guarantees. This study assumes that such a guarantee will not be politically acceptable, but that an exemption will be. In these circumstances it is found that optimal marginal tax rates rise as income rises.

Suggested Citation

  • Kemper Moreland, 2004. "The rise or fall of graduated income tax rates," Applied Economics Letters, Taylor & Francis Journals, vol. 11(4), pages 227-229.
    • Handle: RePEc:taf:apeclt:v:11:y:2004:i:4:p:227-229
    DOI: 10.1080/13504850410001674858
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    References listed on IDEAS

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    1. Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, vol. 7(2), pages 203-235, April.
    2. Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059.
    3. Slemrod, Joel & Yitzhaki, Shlomo & Mayshar, Joram & Lundholm, Michael, 1994. "The optimal two-bracket linear income tax," Journal of Public Economics, Elsevier, vol. 53(2), pages 269-290, February.
    4. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(1), pages 205-229.
    5. Efraim Sadka, 1976. "On Income Distribution, Incentive Effects and Optimal Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(2), pages 261-267.
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    Cited by:

    1. Kemper W. Moreland, 2019. "Income inequality, utility, and optimal income taxation," Economics Bulletin, AccessEcon, vol. 39(1), pages 656-661.
    2. Marie-Estelle Binet, 2008. "Optimal local taxation and French municipal tax distortions," Applied Economics, Taylor & Francis Journals, vol. 40(3), pages 327-332.
    3. Echevarría, Cruz A., 2012. "Income tax progressivity, physical capital, aggregate uncertainty and long-run growth in an OLG economy," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 955-974.

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