On the Optimality of Optimal Income Taxation

Bierbrauer, Felix J.

doi:10.2139/ssrn.1599467

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On the Optimality of Optimal Income Taxation

MPI Collective Goods Preprint, No. 2010/14

19 Pages Posted: 5 May 2010

See all articles by Felix J. Bierbrauer

Felix J. Bierbrauer

Max Planck Institute for Research on Collective Goods

There are 2 versions of this paper

Date Written: April 2010

Abstract

The Mirrleesian model of income taxation restricts attention to simple allocation mechanism with no strategic interdependence, i.e., the optimal labor supply of any one individual does not depend on the labor supply of others. It has been argued by Piketty (1993) that this restriction is substantial because more sophisticated mechanisms can reach first-best allocations that are out of reach with simple mechanisms. In this paper, we assess the validity of Piketty's critique in an independent private values model. As a main result, we show that the optimal sophisticated mechanism is a simple mechanism, or, equivalently, a Mirrleesian income tax system.

Keywords: Optimal Income Taxation, Mechanism Design

JEL Classification: D82, D86, H21

Suggested Citation: Suggested Citation

Bierbrauer, Felix J., On the Optimality of Optimal Income Taxation (April 2010). MPI Collective Goods Preprint, No. 2010/14, Available at SSRN: https://ssrn.com/abstract=1599467 or http://dx.doi.org/10.2139/ssrn.1599467