Pareto efficient income tax schedules and numerical solutions to Mirrlees’ optimal income tax model: A critical survey
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.