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The distortive costs of income taxation
1 : University of Lyon, Ecole Normale Supérieure de Lyon et GATE
(ENS Lyon)
École Normale Supérieure [ENS] - Lyon
2 : Erasmus University Rotterdam
We determine the marginal distortive costs of raising marginal in- come taxes, allowing for both intensive and extensive responses in taxable income. Contrary to earlier literature, we provide these costs for marginal tax rates at every point in the income distribu- tion, while duly taking account of nonlinearities in the tax schedule. We present results for the United States in a way we believe is more informative for actual tax reform than traditional optimal tax sim- ulations.
