Lower tax for minimum wage earners
Abstract
We show that minimum wage earners should pay a lower tax than high earners. Though intuitive, this idea is not supported by the existing literature. The optimal maximin tax curve and two-band taxes are usually decreasing. Since decreasing marginal taxes would be unpopular, by continuity a flat tax seems to be superior to increasing marginal taxes and should be a second best solution. However, using a simple utility function and a general income distribution, we find that lowering the marginal tax for minimum wage earners not only dominates the optimal flat tax under maximin, but also make everyone better off.
Citation
FitzRoy , F & Jin , J 2017 ' Lower tax for minimum wage earners ' School of Economics and Finance Discussion Paper , no. 1703 , University of St Andrews , St Andrews .
ISSN
0962-4031Type
Working or discussion paper
Rights
Copyright (c) 2017, the authors
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