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Optimal Observability in a Linear Income Tax

11 Pages Posted: 11 Jan 2010  

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Christian Traxler

Hertie School of Governance; Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: December 2010

Abstract

We study the optimal observability of the tax base within the standard linear income tax problem, where observability is determined by the government’s investment into the accurate measurement of the tax base. We characterize the optimal level of observability and derive a new expression for the optimal progressivity, which – in addition to the standard equity efficiency trade-off – accounts for the limited accuracy of an income tax system.

Keywords: optimal linear income taxation, observability, tax enforcement

JEL Classification: H21, H11, D8

Suggested Citation

Slemrod, Joel B. and Traxler, Christian, Optimal Observability in a Linear Income Tax (December 2010). MPI Collective Goods Preprint, No. 2010/04. Available at SSRN: https://ssrn.com/abstract=1534586 or http://dx.doi.org/10.2139/ssrn.1534586

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Room R5396
Ann Arbor, MI 48109-1234
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734-936-3914 (Phone)
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National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Christian Traxler (Contact Author)

Hertie School of Governance ( email )

Friedrichstrasse 180
Quartier 110
Berlin, 10117
Germany

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschingerstr. 5
Munich, DE-81679
Germany

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