PARETO EFFICIENT INCOME TAX SCHEDULES AND NUMERICAL SOLUTIONS TO MIRRLEES’ OPTIMAL INCOME TAX MODEL: A CRITICAL SURVEY

Dushko Josheski; Tatjana Boshkov; Mico Apostolov

doi:10.46763/IJEMT2221007j

Dushko Josheski Goce Delcev University of Stip, Faculty of tourism and business logistics
Tatjana Boshkov Goce Delcev University of Stip, Faculty of tourism and business logistics
Mico Apostolov Goce Delcev University of Stip, Faculty of tourism and business logistics

DOI: https://doi.org/10.46763/IJEMT2221007j

Keywords: Pareto efficient taxation, Mirrlees tax model, Optimal taxation

Abstract

This paper aim is to study the Pareto efficient income taxation schedules in Mirrlees’ optimal tax model. These Pareto efficient income tax schedules reveal the famous zero-at- the- top results. Namely that marginal tax rates should be low where probability density function of the distribution of income falls rapidly. Propositions for optimal Pareto income taxation are: There should be no distortionary taxation on the individual with the highest ability while the labor supply of the less able is distorted, there should be no commodity taxation on either high or low ability individuals if leisure and consumption are separable. Atkinson-Stiglitz theorem provides different result than Ramsey (1927) about the commodity taxation but also about optimal taxes on labor income change when in presence of commodity taxes.