Optimum
Income Taxation
**Proposer/Liaison:
Charles Ballard, Ph.D.
In
1971, J. A. Mirrlees authored an influential paper*
in which he explores an optimal tax rate structure
for an income tax. Mirrlees builds a model of an economy
not unlike that found in America. Several simplifying
assumptions are made. Results are obtained through
maximizing an objective function for social welfare
by choosing tax rates. He finds that optimal tax rates
are surprisingly flat. It is speculated that his findings
result from a poorly specified model and are subject
to a “garbage in, garbage out” phenomena.
In particular, it is believed that Mirrlees has used
a poorly specified individual work decision given
government tax policy.
The
ideal project deliverable would consist of a computer
program that models an economy like that of Mirrlees.
This model will duplicate the results found in Mirrlees
paper. Assumptions used by Mirrlees will then be changed
to assumptions that are no less reasonable and the
model’s results will then be compared to those
found by the author in 1971. *Mirrlees, J. A., “An
Exploration in the Theory of Optimum Income Taxation,”
The Review of Economic Studies, Volume 38, Issue 2
(April 1971), 175-208.
**Summary
prepared by Charles Ballard, Ph.D.
Top
of Page
