Conferences, workshops and lectures
Stefan Steinerberger (Yale University)
Tax Mechanisms and Gradient Flows
Commentary: Simon Loretz (WIFO)
Organised by: Austrian Institute of Economic Research
Online since: 06.05.2019 0:00
We study the classic static optimal non-linear income taxation problem (Mirrlees, 1971).
Diamond (1998) and Saez (2001) derive expressions for the optimal taxes that are widely used in public finance. Yet, even
in the simplest cases, those do not provide closed-form solutions or a full characterisation for the optimal income tax. The
solution is a coupled system of differential equations and has relatively few known characteristics. We derive a new characterisation
of the optimum by showing that it satisfies what we call a "fairness principle": taxes at any given level are the average
of nearby taxes. This is joint work with Aleh Tsyvinski (Yale).
Research group:Macroeconomics and European Economic Policy