SFB 303 Discussion Paper No. A - 065

Author: Ebert, Udo
Title: On the Characterization of the Optimal Nonlinear Income Tax
Abstract: The analysis of this paper demonstrates a problem in developing an optimal nonlinear income tax. The crucial point is the way the individuals' reaction to the imposition of the tax is take into account. It turns out that substituting the first-order conditions from utility maximization does not suffice to imply the implementability of the tax system. Also second-order conditions have to be taken into consideration. This leads to an extension of Mirrlees's model and a somewhat more complicated system of necessary conditions for an optimal tax. The obvious thing to do is to investigate the properties of an optimal nonlinear tax in the framework of the extended model. Ebert (1986) deals with this topic.
Creation-Date: June 1986
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