Higher tax for top earners
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The literature can justify both increasing and decreasing marginal taxes (IMT & DMT) on top incomes under different welfare objectives and income distributions. Even when DMT are theoretically optimal, they are often politically infeasible. Then a flat tax seems to be a constrained optimal solution. We show however that, given any flat tax we can increase the total utility of a poor majority by raising the top income tax rate under a simple condition, which can be checked with empirical data. We further generalize our main results allowing different welfare weights, declining elasticity of labor supply and more tax bands.
FitzRoy , F R & Jin , J Y 2017 , ' Higher tax for top earners ' Journal of Economics , vol 122 , no. 2 , pp. 121-136 . DOI: 10.1007/s00712-017-0557-1
Journal of Economics
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