Negative Marginal Tax Rates and Heterogeneity
American Economic Review
no. 5, December 2010
Heterogeneity is an important determinant of the shape of optimal tax schemes. This is shown here in a model à la Mirrlees. The agents differ in their productivities and opportunity costs of work, but their labor supplies depend only on a given unidimensional combination of these two characteristics. Conditions are provided under which marginal tax rates are everywhere nonnegative. This is the case when work opportunity costs are distributed independently of income. But one can also get negative marginal tax rates, in particular at the bottom of the income distribution. A numerical illustration is given, based on UK data. (JEL H21, H24, H31, J22)
Choné, Philippe, and Guy Laroque.
"Negative Marginal Tax Rates and Heterogeneity."
American Economic Review,
Taxation and Subsidies: Efficiency; Optimal Taxation
Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
Fiscal Policies and Behavior of Economic Agents: Household
Time Allocation and Labor Supply