Economics, Econometrics and Finance
6 years ago

New research reveals how to design fairer income tax systems!

2017 Meeting Papers
Inverse Optimal Taxation in Closed Form
Hitoshi Tsujiyama, Jonathan Heathcote

Paper Summary

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The article shows that it is possible to find a simple formula for the social welfare function used to determine the best tax system. This formula depends on how taxes are currently set and on people's preferences and productivity levels. The researchers found that it is easier to figure out the social welfare function that justifies a tax system than to find the best tax system for a given social welfare function. This makes it easier to understand how taxes should be set to benefit everyone.