A reconsideration of the optimal income tax

Working paper

This paper develops a formula for the optimal nonlinear income tax, the terms of which are familiar from the theory of linear income taxation. The development uses the idea of a perturbation of the optimal schedule and is based upon as assumption of differentiability. It is also shown that the introduction of non-differentiability, implying bunching of taxpayers, may be desirable and, in this case, the optimal schedule may be difficult to determine. The analysis can be applied to nonlinear tax reform.

Authors: Roberts, K

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Publication date: 2000-03-01
• Paper number: 6
• Keywords: tax reform; bunching; nonlinear taxation; income taxation