The modern literature on optimal labor income taxation largely follows from james mirrlees exploration in the theory of optimum income taxation. Mirrlees optimum income taxation 177 will be assumed that f is differentiable, so that there is a density function for ability, fn fn. Mirrlees 1971, which seeks to characterize the optimal tax system subject only to the constraint that taxes must be a. Mirrlees 1971 flavor of universal basic income others have argued forushapedmarginal tax schedule diamond 1998 saez 2001 flavor of meanstested transfers or should marginal tax rates beincreasingwith income, as in the u.
The ideas of james mirrlees, 19362018 vox, cepr policy portal. It is usually classified as a direct tax because the burden is presumably on the individuals who pay it. Comprehensive description in gruber undergrad textbook. This paper argues that the large body of research that follows mirrlees approach. Based on the findings of a commission chaired by james mirrlees, this volume presents a picture of tax reform whose aim is to identify the characteristics of a good tax system for any open developed. Optimal income tax theory incorporates behavioral responses mirrlees. Pdf the theory of optimal income taxation researchgate. Income taxation and public sector pricing are considered in an integrated controltheory model of the mirrlees tradition. It draws on the expert evidence from the commissioned chapters and commentaries in dimensions of tax design.
The recommendations stress the importance of neutrality and transparency in tax design. Most of the redistribution in the mirrlees world comes about from per capita demo grants, not from a graduated rate structure. Dimensions of tax design institute for fiscal studies ifs. Income taxation, public sector pricing and redistribution. This finding is known as the diamondmirrlees efficiency theorem, and it is widely credited with having modernized ramseys analysis by considering the problem of. The book explains the differences in optimal redistributive tax systems when. Gregory mankiw, matthew weinzierl, and danny yagan abstract. The third set of extensions considers extending the mirrlees income tax. Presents the main and most important ideas in optimal taxation. Individual income tax is computed on the basis of income received.
He spent several months a year at the university of melbourne, australia. He published a book on this topic in 1990 entitled optimal income tax and redistribution oup. Under this speci cation, a higher marginal tax rate. Mirrleess main contribution was some highly complex mathematics that allowed him to solve a problem in taxation that william vickrey had posed but had not been able to. Comprehensive coverage, from early literature to mirrlees most recent macro public finance. Income tax, levy imposed on individuals or family units and corporations. Optimal top income tax rate revenue maximizing top marginal tax rate above z. The economic approach to tax design institute for fiscal studies. An approximately linear income tax schedule is desirable.
Using the mirrlees optimal income tax model with quasilinear preferences, the paper examines conditions for marginal tax rates to be rising at high income levels and. Optimal labor income taxation university of california, berkeley. It is shown that the often alleged separability between income taxation as a purely distributional instrument and public pricing as a purely allocational instrument usually does not. His contributions have proved fundamental to the development of a wide range of areas in economics. Chapter 24 the theory of optimal taxation sciencedirect.
Redistribution through taxation can take income out of the hands of rich. Non%linear tax systems are studied with income taxation. Diamond, of the diamondmirrlees efficiency theorem, which was developed in 1971. The first set of extensions considers changing the preferences for consumption and work. As readers of this book will have gleaned, some of the required. We address this question in an environment featuring distinct roles for public and private insurance.
Mirrlees was emeritus professor of political economy at the university of cambridge and a fellow of trinity college, cambridge. The book explains in depth the mirrlees model and presents various extensions of it. Nobel prizewinning economist james mirrlees is one of the worlds leading figures in welfare, development, and public sector economics. Most of this book looks at particular aspects of the tax systemhow it treats earnings, savings. Assume that our undistorted decisions about how to allocate our time between paid and unpaid activities are welfaremaximizing. Mirrlees published a seminal paper which showed that even when lumpsum taxation is not available, production efficiency is still desirable. By the way, mirrlees did not suggest zero tax at the bottom as in this table. Mirrlees meets ramsey find, read and cite all the research you need on researchgate. My father came there in 1934, newly married, to be a teller in one of the six banks. Mirrlees meets ramsey jonathan heathcotey federal reserve bank of minneapolis and cepr hitoshi tsujiyamaz goethe university frankfurt august 27, 2019 abstract what is the optimal shape of the income tax schedule. We start with what we call the micro approach to optimal taxation. It originates with mirrlees 1971, mirrlees 1976, and mirrlees 19861 and is more recently carried out. James mirrlees wikimili, the free encyclopedia wikimili, the free encyclopedia.
As recommended by theory, top marginal income tax rates have. Regarding the alternatives of moving to a consumption based tax system, the commentary discusses the relative merits of choosing an ace system allowance for corporate equity rather than a cashflow tax on the company level. Unpacked, mirrlees claim can be restated as follows. Call an individual whose abilityparameter is n an nman. Welfare, incentives, and taxation by james a mirrlees book 23. Mirrlees and others published the theory of optimal income taxation find, read and cite all the research you need on. New income tax calculation 2020 new income tax rates new income tax slabs old vs new tax slabs duration. We highlight and explain eight lessons from optimal tax theory and compare them to the last few decades of oecd tax policy. A reexamination of the optimal nonlinear income tax.
It was emmanuel saez who showed that optimal marginal tax rates at the bottom may be negative because at such low income level, people are debating whether to. When it comes to income taxation, there is a strong case for keeping things. James mirrlees wikimili, the best wikipedia reader. In 1971, james mirrlees published an exploration in the theory of optimum income taxation, one of the most influential tax papers ever written. Section 2 discusses the design of capital income taxation at the personal and business level and the systems longrun neutrality properties. Sir james alexander mirrlees frse fba 5 july 1936 29 august 2018 was a scottish economist and winner of the 1996 nobel memorial prize in economic sciences. Does the income tax cause parents to spend too much time. Corporate income tax is imposed on net profits, computed as the excess of receipts over allowable costs. Optimal taxation in theory and practice 060109 final. Mirrlees biographical n ewton stewart is a town of two thousand people in the beautiful centre of galloway, in the southwest of scotland. In 1996 james mirrlees and william vickrey were awarded the nobel prize in economics for their fundamental contributions to the economic theory of incentives under asymmetric information. Sir james mirrlees, corecipient of the 1996 nobel memorial prize in. Optimal redistributive taxation matti tuomala oxford.
Mirrlees wrote, i must confess that i had expected the rigourous analysis of income taxation in the utilitarian manner to provide arguments for high tax rates. Tax by design identifies what makes a good tax system for an open developed economy in the 21st century and suggests how the uk tax system could be reformed to move in that direction. This volume brings together for the first time published and unpublished seminal work on these key areas, providing an essential overview to much of his lifes work. Marginal taxes should be highest at low levels of income. Being a student of nobelprize winner james mirrlees, matti tuomala has devoted large parts of his academic career to extending the mirrlees 1971 framework of optimal nonlinear income taxation. Mirrlees was also cocreator, with mit professor peter a. Request pdf on jan 22, 2015, jonathan heathcote and others published optimal income taxation. The consumption choice of an nman is denoted by xn, yn. Mirrlees meets ramsey jonathan heathcote federal reserve bank of minneapolis hitoshi tsujiyama goethe university frankfurt dec, 20 preliminary and incomplete 1 introduction in this paper we revisit a classic question in public nance.