SFB 303 Discussion Paper No. A - 273

Author: Wiesmeth, Hans
Title: Linear Income Taxes: The Interaction Between State and Taxpayers
Abstract: In an economy with a finite population or with a finite number of homogenous groups, taxpayers may either act competitively or react strategically to a linear income tax schedule. Strategic reaction to the tax policy of the government leads to an implementability problem for marginal tax rates with subsequent consequences for feasible tax policies. Also, effiency properties of the strategic solution are compared to those of the competitive outcome. Strategic behaviour yields an increase in total income, and, at least for small values of the marginal tax rate, a Pareto superior allocation.
Keywords: Fiscal Theory, Microeconomic Theory
JEL-Classification-Number: 321, 022
Creation-Date: January 1990
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