Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2021-07-29
Number: 21-071/VI
Author-Name: Albert Jan Hummel
Author-Workplace-Name: University of Amsterdam
Title: Tax Curvature
Abstract: In a Mirrleesian environment, a monopsonist sets hourly wages and individuals choose how many hours to work. Labor market outcomes do not only depend on the level and slope of the income tax function, but also on its curvature. A more concave tax schedule raises the elasticity of labor supply, which boosts wages. Consequently, optimal marginal tax rates for low-skilled workers are declining in income. I derive an optimal tax formula in terms of sufficient statistics that accounts for the impact of tax curvature on labor market outcomes.
Classification-JEL: J42, H21, J38
Keywords: monopsony, optimal taxation, tax curvature
File-URL: https://papers.tinbergen.nl/21071.pdf
File-Format: application/pdf
File-Size: 571.424 bytes
Handle: RePEc:tin:wpaper:20210071