This paper analyzes the optimal treatment of tax expenditures. It develops an optimal tax model where individuals derive utility from spending on a ‘‘contribution’’ good such as charitable giving. The contribution good has also a public good effect on all individuals in the economy. The government imposes linear taxes on earnings and on the contribution good so as to maximize welfare. The gover...

Following Mirrlees (1971) and Vickrey (1945), the optimal tax literature has studied the design of a personal income tax where the ideal would be to tax unobserved earnings ability but instead the only available information is actual earnings. In practice, though, taxes depend on a broader range of information about each individual than earnings. In principle, this supplementary information can...

By exploiting the structural tax rate changes created by the Bush-era tax acts in 2001 and 2003, this study offers a first direct investigation of how the differential taxation of financial assets affects households’ asset location and allocation into taxable and tax-deferred accounts in a natural experimental framework. Because bonds are heavily taxed assets, relative to stocks, and tax treatm...

AIM The study aimed to explore the place of taxation in preventing underage binge drinking in Germany. METHOD We reviewed evidence on the role of excise taxes on alcohol in preventing alcohol problems and underage drinking. We analyzed historical German data on tax on alcoholic beverages and compared this with European data, finally calculating tax scenarios and their impact on underage binge...

We derive the first closed-form optimal refinancing rule: Refinance when the current mortgage interest rate falls below the original rate by at least [Formula: see text] In this formula W(.) is the Lambert W-function, [Formula: see text]ρ is the real discount rate, λ is the expected real rate of exogenous mortgage repayment, σ is the standard deviation of the mortgage rate, κ/M is the ratio of ...

Optimal Piecewise Linear Income Taxation Given its significance in practice, piecewise linear taxation has received relatively little attention in the literature. This paper offers a simple and transparent analysis of its main characteristics. We fully characterize optimal tax parameters for the cases in which budget sets are convex and nonconvex respectively. A numerical analysis of a discrete...

This paper reviews recent developments in the theory of optimal labor income taxation. We emphasize connections between theory and empirical work that were initially lacking from optimal income tax theory. First, we provide historical and international background on labor income taxation and means-tested transfers. Second, we present the simple model of optimal linear taxation. Third, we consid...

We consider a game-theoretic model where individuals compete over a shared failure-prone system or resource. We investigate the effectiveness of a taxation mechanism in controlling the utilization of the resource at the Nash equilibrium when the decision-makers have behavioral risk preferences, captured by prospect theory. We first observe that heterogeneous prospect-theoretic risk preferences ...

This handbook chapter reviews recent developments in the theory of optimal labor income taxation. We emphasize connections between theory and empirical work that were initially lacking from optimal income tax theory. First, we provide historical and international background on labor income taxation and means-tested transfers. Second, we present the simple model of optimal linear taxation. Third...

This paper analyzes socially optimal forest taxation when the government has a binding tax revenue requirement. In the Faustmann model the optimal design of forest taxation consists of non-distortionary taxes, such as site productivity tax, site value tax or profit tax. A combination of distortionary unit (or yield) tax and timber tax can also be used to collect the tax revenue in a non-distort...