NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Menus of Linear Income Tax Schedules

Alberto Alesina, Philippe Weil

NBER Working Paper No. 3968
Issued in January 1992
NBER Program(s):   PE

Relative to traditional piecewise linear income taxation schemes, it is possible to increase government revenues by offering to consumers a menu of linear income tax schedules. In the resulting Pareto-superior equilibrium, consumers sort themselves out according to their (unobservable) productivity level, with high productivity agents choosing the tax schedules with low marginal tax rate and high intercept. This scheme extracts from the economy an unexploited source of revenue which, in contrast with standard supply-side proposals, does not depend on the economy being on the downward-sloping side of the Laffer curve.

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