Applied Micro Seminar : Every Tuesday
Time: 12:15 pm – 13:30 pm
Date: March, 10th
Room : 3001

Claus Thustrup Kreiner  “Optimal Redistribution and Tax Enforcement”

Abstract : 

We incorporate taxpayer non-compliance and government enforcement into the theory of optimal non-linear income taxation and derive sufficient-statistics formulas characterizing the jointly optimal tax and enforcement scheme. The optimal tax formula is familiar, but the elasticity of taxable income becomes endogenous to enforcement. Optimal enforcement equates the marginal revenue from increased income reporting—which depends on the optimal tax rate—with the marginal public enforcement costs and welfare-weighted private compliance costs. Stronger redistributive preferences raise optimal top-income tax rates, increasing the social returns to enforcement, while simultaneously lowering the social cost of imposing compliance on high-income taxpayers. When the planner assigns zero weight to marginal consumption of evaders, optimal enforcement reduces to a simple cost–benefit rule. We calibrate the model to the U.S. economy and provide simulations that illustrate the quantitative importance of enforcement for redistribution and its interactions.

Organizers:
Benoît SCHMUTZ (Pôle économie du CREST)
Clément MALGOUYRES (Pôle économie du CREST)

Sponsors:
CREST