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Cited by 938

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Using Elasticities to Derive Optimal Income Tax Rates

Saez, E.·2001·The Review of Economic Studies
DOI 10.1111/1467-937x.00166
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Abstract

This paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates. A simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution. In the general non-linear income tax problem, this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of Mirrlees. The optimal non-linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution. These formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters.

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Authors
Saez, E.
Venue
The Review of Economic Studies
Publisher
Oxford University Press (OUP)
Published
2001-01-01
Volume
68
Issue
1
Pages
205-229
ISSN
  • 0034-6527 (ISSN-L)
  • 1467-937X
DOI
10.1111/1467-937x.00166
OpenAlex
W2265679842
Cited by
938
References
0
FWCI
18.79
Type
journal article
Language
en
Open access
closed

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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).

Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.