Optimal Income Taxation
This article explores subjects in optimal income taxation characterized by recent research interest, practical importance in light of concerns about inequality, potential for misunderstanding, and prospects for advancement. Throughout, the analysis highlights paths for further investigation. Areas of focus include multidimensional abilities and endogenous wages; asymmetric information and the income of founders; production and consumption externalities from labor effort; market power and rents; behavioral phenomena relating to perceptions of the income tax schedule, myopic labor supply, and the interactions of savings, savings policies, and labor supply; optimal income transfers; the relationship between optimal income taxation and the use of other instruments; and issues relating to the social welfare function and utility functions, including nonwelfarist objectives, welfare weights, heterogeneous preferences, and taxation of the family.
I am grateful to the editor, referees, Alan Auerbach, Ashley Craig, James Hines, Benjamin Lockwood, Casey Rothschild, Florian Scheuer, and Matthew Weinzierl for helpful comments and discussions; John Graham, Julia Huang, Xinchen Li, Leslie Liu, Nikolas Paladino, John Sullivan, and Michael Wei for research assistance; and Harvard University’s John M. Olin Center for Law, Economics, and Business for financial support. Disclaimer: I consult on antitrust matters, and my spouse is a lawyer who mostly represents financial services firms. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.