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Comparative Statics of Optimal Nonlinear Income Taxation with a Publicly Provided Input and a Nonlinear Production Technology

Authors


  • Craig Brett's research is generously supported by the Canada Research Chair Program. This project was supported by the Social Sciences and Humanities Research Council of Canada. We thank Robin Boadway, Katherine Cuff, Firhouz Gavhari, Richard Harris, Fernando Ruiz, the associate editor, and the referee for helpful comments. We are also grateful to the participants in the Public Economics Conference in honor of Robin Boadway held at Queen's University, the 2009 Canadian Economics Association Meetings, and PET09 Galway.

Abstract

Comparative static properties of the solution to an optimal nonlinear income tax problem are provided for a model in which the government both designs a redistributive income tax schedule and provides a public input for a nonlinear production technology. These assumptions imply that wage rates are endogenous. The endogeneity of the wages necessitates taking account of general equilibrium effects of changes in the parameters of the model that are not present when the technology is linear.

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