TY  - UNPD
A1  - Conesa, Juan Carlos
A1  - Krueger, Dirk
T1  - On the optimal progressivity of the income tax code
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2005,10
N2  - This paper computes the optimal progressivity of the income tax code in a dynamic general equilibrium model with household heterogeneity in which uninsurable labor productivity risk gives rise to a nontrivial income and wealth distribution. A progressive tax system serves as a partial substitute for missing insurance markets and enhances an equal distribution of economic welfare. These beneficial effects of a progressive tax system have to be traded off against the efficiency loss arising from distorting endogenous labor supply and capital accumulation decisions. Using a utilitarian steady state social welfare criterion we find that the optimal US income tax is well approximated by a flat tax rate of 17:2% and a fixed deduction of about $9,400. The steady state welfare gains from a fundamental tax reform towards this tax system are equivalent to 1:7% higher consumption in each state of the world. An explicit computation of the transition path induced by a reform of the current towards the optimal tax system indicates that a majority of the population currently alive (roughly 62%) would experience welfare gains, suggesting that such fundamental income tax reform is not only desirable, but may also be politically feasible. JEL Klassifikation: E62, H21, H24 .
T3  - CFS working paper series - 2005, 10 
KW  - Progressive Taxation
KW  - Optimal Taxation
KW  - Flat Taxes
KW  - Social Insurance
KW  - Transition
KW  - Einkommensteuer
KW  - Steuerprogression
Y1  - 2005
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4407
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30-10855
IS  - March 17, 2005
ER  -