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| Publications [#15950] of Arie Beresteanu
Papers Submitted
- Arie Beresteanu, Momy Dahan, An optimal shape of income tax: evidence from Zero income tax countries - Paraguay and Uruguay
(2004)
(last updated on 2006/05/25)
Author's Comments:
under revisions
Abstract:
Most of the existing literature on the
optimal shape of
income tax has a common result - decreasing
marginal tax
rates - a sharp contrast with real world
income tax
systems. Diamond (1998) made explicit the
factors that
affect the optimal shape of income tax
rates. Special
attention was given to one of the effects:
the distribution
effect. The main goal of this paper is to
empirically
explore whether the ‘distribution effect’
implies rising or
declining marginal income tax rates with
special interest
at high levels of income. We estimate the
hourly wage
distribution as a proxy for the distribution
of skills.
Based on data from Paraguay and Uruguay, we
show that the
desired income tax schedule implied by
the ‘distribution
effect' should exhibit increasing marginal
tax rates at
high levels of income. We use a
nonparametric estimation
technique to avoid using any functional form
assumptions on
the skill distribution.
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