The optimal differentiated income taxation for groups categorized based on benefits from public goodsThe optimal differentiated income taxation for groups categorized based on benefits from public goods
2016-05 , Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University
This paper examines optimal nonlinear income taxes under the provision of a public good when individuals differ in public goods preferences and earning abilities. We suppose two groups whose benefits from public goods are different, and we consider that the government implement the group-specific income tax schedules. Our main argument is that the government redistributive tastes and the correlation of public goods preferences and earning abilities are especially crucial in differentiating marginal income tax rates. In numerical simulations, we present how these factors affect the shape of the optimal differentiated marginal income tax rates in terms of some social welfare functions.