The Case for a Progressive Tax: From Basic Research to Policy Recommendations

摘要

The fair distribution of the tax burden has long been a central issue in policy-making. A large academic literature has developed models of optimal tax theory to cast light on the problem of optimal tax progressivity. In this paper, we explore the path from basic research results in optimal tax theory to formulating policy recommendations.Models in optimal tax theory typically posit that the tax system should maximize a social welfare function subject to a government budget constraint, taking into account that individuals respond to taxes and transfers. Social welfare is larger when resources are more equally distributed, but redistributive taxes and transfers can negatively affect incentives to work, save, and earn income in the first place. This creates the classical trade-off between equity and efficiency which is at the core of the optimal income tax problem. In general, optimal tax analyses maximize social welfare as a function of individual utilities-the sum of utilities in the utilitarian case. The marginal weight for a given person in the social welfare function measures the value of an additional dollar of consumption expressed in terms of public funds. Such welfare weights depend on the level of redistribution and are decreasing with income whenever society values more equality of income.