TY - JOUR
AU - Saez, Emmanuel
TI - Using Elasticities to Derive Optimal Income Tax Rates
JF - National Bureau of Economic Research Working Paper Series
VL - No. 7628
PY - 2000
Y2 - March 2000
DO - 10.3386/w7628
UR - http://www.nber.org/papers/w7628
L1 - http://www.nber.org/papers/w7628.pdf
N1 - Author contact info:
Emmanuel Saez
Department of Economics
University of California, Berkeley
530 Evans Hall #3880
Berkeley, CA 94720
Tel: 510/642-4631
Fax: 510/642-6615
E-Mail: saez@econ.berkeley.edu
AB - This paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates. A simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution. In the general non-linear income tax problem, this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of Mirrlees. The optimal non-linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution. These formulas are implemented numerically using empirical earnings distributions and a range of realistic elasticity parameters.
ER -