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Does higher tax morale imply higher optimal labor income tax rate?

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  • Andras Simonovits

    (Institute of Economics, Research Center for Economic and Regional Studies, Hungarian Academy of Sciences, also Institute of Mathematics, Budapest University of Technology and Economics also Department of Economics, CEU)

Abstract

We analyze the impact of tax morale on the optimal progressive labor income taxation. Only universal basic income is financed from a linear tax and the financing of public goods is neglected. Each individual supplies labor and (un)declares earning, depending on his labor disutility and tax morale. Limiting the utilitarianism to the poorer parts of the population (defined by the inclusion share), the optimal tax rate is an increasing function of the tax morale and a decreasing function of the inclusion share, provide that the average wage of the included is higher than 0.54 times the average wage.

Suggested Citation

  • Andras Simonovits, 2012. "Does higher tax morale imply higher optimal labor income tax rate?," CERS-IE WORKING PAPERS 1218, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:discpr:1218
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    References listed on IDEAS

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    More about this item

    Keywords

    tax morale; progressive income tax; undeclared earning; labor supply; income redistribution;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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