Optimal tax problems with multidimensional heterogeneity: a mechanism design approach

We propose a new method, that we call an allocation perturbation, to derive the optimal nonlinear income tax schedules with multidimensional individual characteristics on which taxes cannot be conditioned. It is well established that, when individuals differ in terms of preferences top their skills, marginal rates can negative. In contrast, show heterogeneous behavioral responses and one has positive rates, under utilitarian maximin.