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<p>Heterogeneity is likely to be an important determinant of the shape of optimal tax schemes. This article addresses the issue in a model à la Mirrlees with a continuum of agents. The agents differ in their productivities and opportunity costs of work, but their labor supplies depend only on a unidimensional combination of their two characteristics. Conditions are given under which the standard result that marginal tax rates are everywhere non-negative holds. This is in particular the case when work opportunity costs are distributed independently of productivities. But one can also get negative marginal tax rates: economies where negative tax rates are optimal at the bottom of the income distribution are studied, and a numerical illustration is given, based on UK data. </p>
Authors
Guy Laroque
Phillippe Choné
Working Paper details
- DOI
- 10.1920/wp.ifs.2009.0912
- Publisher
- IFS
Suggested citation
Choné, P and Laroque, G. (2009). Negative marginal tax rates and heterogeneity. London: IFS. Available at: https://ifs.org.uk/publications/negative-marginal-tax-rates-and-heterogeneity (accessed: 25 April 2024).
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