Header

UZH-Logo

Maintenance Infos

Mirrlees meets Diamond-Mirrlees: simplifying nonlinear income taxation


Scheuer, Florian; Werning, Iván (2018). Mirrlees meets Diamond-Mirrlees: simplifying nonlinear income taxation. NBER Working papers 22076, NBER.

Abstract

We show that the Diamond and Mirrlees (1971) linear tax model contains the Mirrlees (1971) nonlinear tax model as a special case. In this sense, the Mirrlees model is an application of Diamond-Mirrlees. We also provide a simple derivation of the Mirrleesian optimal income tax formula from the Diamond-Mirrlees commodity tax formula. In the Mirrlees model, the relevant compensated cross-price elasticities are zero, providing a situation where an inverse elasticity rule holds. We provide four extensions that illustrate the power and ease of our approach, based on Diamond-Mirrlees, to study nonlinear taxation. First, we consider annual taxation in a lifecycle context. Second, we include human capital investments. Third, we incorporate more general forms of heterogeneity into the basic Mirrlees model. Fourth, we consider an extensive margin labor force participation decision, alongside the intensive margin choice. In all these cases, the relevant optimality condition is easily obtained as a direct application of the general Diamond-Mirrlees linear tax formula.

Abstract

We show that the Diamond and Mirrlees (1971) linear tax model contains the Mirrlees (1971) nonlinear tax model as a special case. In this sense, the Mirrlees model is an application of Diamond-Mirrlees. We also provide a simple derivation of the Mirrleesian optimal income tax formula from the Diamond-Mirrlees commodity tax formula. In the Mirrlees model, the relevant compensated cross-price elasticities are zero, providing a situation where an inverse elasticity rule holds. We provide four extensions that illustrate the power and ease of our approach, based on Diamond-Mirrlees, to study nonlinear taxation. First, we consider annual taxation in a lifecycle context. Second, we include human capital investments. Third, we incorporate more general forms of heterogeneity into the basic Mirrlees model. Fourth, we consider an extensive margin labor force participation decision, alongside the intensive margin choice. In all these cases, the relevant optimality condition is easily obtained as a direct application of the general Diamond-Mirrlees linear tax formula.

Statistics

Citations

Dimensions.ai Metrics

3 citations in Microsoft Academic

Altmetrics

Downloads

39 downloads since deposited on 11 Aug 2017
24 downloads since 12 months
Detailed statistics

Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:D6, D8, E6, H2, J2
Language:English
Date:September 2018
Deposited On:11 Aug 2017 12:49
Last Modified:24 Sep 2019 22:44
Series Name:NBER Working papers
Number of Pages:51
Additional Information:Revised version
OA Status:Hybrid
Publisher DOI:https://doi.org/10.3386/w22076
Related URLs:http://www.nber.org/papers/w22076

Download

Hybrid Open Access

Download PDF  'Mirrlees meets Diamond-Mirrlees: simplifying nonlinear income taxation'.
Preview
Content: Updated Version
Filetype: PDF (Revised manuscript September 2018)
Size: 353kB
View at publisher
Content: Published Version
Filetype: PDF (Version March 2016) - Registered users only
Size: 293kB
Download PDF  'Mirrlees meets Diamond-Mirrlees: simplifying nonlinear income taxation'.
Preview
Content: Accepted Version
Filetype: PDF (Version September 2016)
Size: 289kB