Optimal linear and two-bracket income taxes with idiosyncratic earnings risk

• 成果类型: Article
• 署名作者: Hsu, Minchung; Yang, C. C.
• 署名单位: National Graduate Institute for Policy Studies; Academia Sinica - Taiwan; National Chengchi University; Feng Chia University
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2013.06.006
• 发表日期: 2013
• 页码: 58-71
• 关键词: Optimal taxation; Piecewise linear tax; idiosyncratic risk

摘要

This paper quantitatively characterizes optimal linear and two-bracket income taxes. We consider a dynamic-stochastic-general-equilibrium model in which tax design involves redistributing income for both equity and social insurance. Substantive findings include: (i) a significant fraction of agents supply zero labor or hold zero assets at the optimum; (ii) neglecting tax distortion imposed on either of labor-leisure and consumption-saving decisions will lead to the prescription of tax codes that deviate substantially from the optimum; and (iii) the optimal two-bracket tax schedule will turn from regressivity to progressivity in the marginal tax rate once the volatility of idiosyncratic shocks becomes sufficiently large. The last finding is consistent with the results in Apps et al. (forthcoming), and it also reconciles the contradictory results regarding the optimal two-bracket tax schedule between Slemrod et al. (1994) and Strawczynski (1998). (C) 2013 Elsevier B.V. All rights reserved.