Working Paper: CEPR ID: DP8435
Authors: Stefan Bach; Giacomo Corneo; Viktor Steiner
Abstract: This paper analytically derives optimal top marginal tax rates when couples are taxed according to income splitting between spouses, consumption is taxed, and the skill distribution is unbounded. Optimal top marginal income tax rates are then quantified for Germany. Estimation results based on an exhaustive dataset of top taxpayers suggest that the optimal asymptotic tax rate is close to 2/3 and only applies to incomes that are considerably higher than those currently subject to the actual top tax rate.
Keywords: optimal income tax; top incomes
JEL Codes: D31; D72; H23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| top marginal tax rates (H21) | labor supply (J20) |
| optimal top tax rate (H21) | income distribution of couples versus singles (D31) |
| elasticities of labor supply (J20) | optimal top tax rate (H21) |
| income distribution (D31) | optimal top tax rate (H21) |
| higher marginal tax rates (H31) | tax revenue (H27) |
| optimal marginal tax rate (H21) | actual rate currently applied (E43) |