The Pareto-Frontier in a Simple Mirrleesian Model of Income Taxation

20 Pages Posted: 14 May 2010 Last revised: 9 Jan 2011

See all articles by Felix J. Bierbrauer

Felix J. Bierbrauer

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

Pierre Boyer

Ecole Polytechnique, Palaiseau - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2010

Abstract

We characterize the Pareto-frontier in a simple Mirrleesian model of income taxation. We show how the second-best frontier which incorporates incentive constraints due to private information on productive abilities relates to the first-best frontier which takes only resource constraints into account. In particular, we argue that the second-best frontier can be interpreted as a Laffer-curve. We also use this second-best frontier for a comparative statics analysis of how optimal income tax rates vary with the degree of inequity aversion, and for a characterization of optimal public-good provision. We show that a more inequity averse policy maker chooses tax schedules that are more redistributive and involve higher marginal tax rates, but chooses a lower public-goods provision level.

Keywords: Optimal Income Taxation, Public-Good Provision, Laffer-Curve

JEL Classification: D82, H21, H41

Suggested Citation

Bierbrauer, Felix J. and Boyer, Pierre C., The Pareto-Frontier in a Simple Mirrleesian Model of Income Taxation (May 1, 2010). MPI Collective Goods Preprint No. 2010/16. Available at SSRN: https://ssrn.com/abstract=1604373 or http://dx.doi.org/10.2139/ssrn.1604373

Felix J. Bierbrauer (Contact Author)

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

Pierre C. Boyer

Ecole Polytechnique, Palaiseau - Department of Economics ( email )

Route de Saclay
Palaiseau, 91120
France

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

Poschinger Str. 5
Munich, DE-81679
Germany

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