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An upper bound on optimal income taxes

Authors
Journal
Journal of Public Economics
0047-2727
Publisher
Elsevier
Publication Date
Volume
30
Issue
2
Identifiers
DOI: 10.1016/0047-2727(86)90043-5

Abstract

Abstract The message of this paper is very simple: a certain range of tax rates, determined by supply and demand functions only, can be disregarded in linear optimal taxation approaches before any interpersonal utility comparisons are made. In particular, no marginal tax rate above a certain level β ̂ <1 can be optimal with respect to Pareto inclusive social orderings. It is shown that β̂ is in general not larger than, and sometimes strictly less than, the minimal tax rate at which tax revenues are maximal. Conditions under which β̂ is the least upper bound are given, and a comparison is made with tax rates obtained by the Rawlsian maximin principle.

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