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The Personal Income Tax Structure: Theory and Policy

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  • John Creedy

Abstract

There is now a large and complex literature on optimal income taxation, within the context of second-best welfare economics. This paper considers the potential role of this analysis in the practical design of direct tax and transfer structures. It is stressed that few results are robust, even in simple models, in view of the important role played by alternative social welfare functions, the nature of the distribution of abilities and the preferences of individuals. In view of these negative results, it is suggested that a range of empirical tax analyses, capturing particular issues, can provide helpful guidance for policy analysts. Numerical illustrations are provided, paying attention to the role of a ‘top’ marginal tax rate applied to higher-income groups. In particular, behavioural microsimulation models can be used to examine marginal direct tax reform. Such models have the advantages of capturing the full extent of population heterogeneity and the complexity of the tax structure.

Suggested Citation

  • John Creedy, 2009. "The Personal Income Tax Structure: Theory and Policy," Department of Economics - Working Papers Series 1063, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:1063
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    References listed on IDEAS

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    22. John Creedy & Guyonne Kalb, 2006. "Labour Supply and Microsimulation," Books, Edward Elgar Publishing, number 4236.
    23. John Creedy & Norman Gemmell, 2006. "Modelling Tax Revenue Growth," Books, Edward Elgar Publishing, number 4073.
    24. John Creedy & Cath Sleeman, 2006. "The Distributional Effects of Indirect Taxes," Books, Edward Elgar Publishing, number 12558.
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    30. John Creedy & Guyonne Kalb, 2005. "Measuring Welfare Changes In Labour Supply Models," Manchester School, University of Manchester, vol. 73(6), pages 664-685, December.
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    Cited by:

    1. Misch, Florian & Gemmell, Norman & Kneller, Richard, 2014. "Complementarity in Models of Public Finance and Endogenous Growth," Working Paper Series 3136, Victoria University of Wellington, Chair in Public Finance.
    2. Misch, Florian & Gemmell, Norman & Kneller, Richard, 2014. "Complementarity in Models of Public Finance and Endogenous Growth," Working Paper Series 18802, Victoria University of Wellington, Chair in Public Finance.
    3. Misch, Florian & Gemmell, Norman & Kneller, Richard Anthony, 2011. "Fiscal policy and growth with complementarities and constraints on government," ZEW Discussion Papers 11-018, ZEW - Leibniz Centre for European Economic Research.
    4. Iwo Augustyński, 2016. "Skutki podniesienia kwoty wolnej od podatku od dochodów osobistych," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 55-71.
    5. Stefano Boscolo, 2019. "Quantifying the Redistributive Effect of the Erosion of the Italian Personal Income Tax Base: A Microsimulation Exercise," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2019(2), pages 39-80.

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    More about this item

    Keywords

    Personal income Tax Structure;

    JEL classification:

    • B3 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals
    • B30 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - General
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • D3 - Microeconomics - - Distribution
    • D30 - Microeconomics - - Distribution - - - General
    • D39 - Microeconomics - - Distribution - - - Other
    • D6 - Microeconomics - - Welfare Economics
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D69 - Microeconomics - - Welfare Economics - - - Other
    • P42 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Productive Enterprises; Factor and Product Markets; Prices
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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