This paper investigates whether taxpayers bunch at the kink points of the US income tax schedule (i.e. where marginal rates jump) using tax returns data. Clear evidence of bunching is found only at the first kink point (where marginal rates jump from 0 to 15%). Evidence for other kink points is...

We characterize optimal policies in a multidimensional nonlinear taxation model with bunching. We develop an empirically relevant model with cognitive and manual skills, firm heterogeneity, and labor market sorting. The analysis of optimal policy is based on two main results. We first derive an...

We study optimal taxation in a model with endogenous financial frictions, risky investment and occupational choice, where the distribution of wealth across entrepreneurs affects how efficiently capital is used. The planner chooses linear taxes on wealth, capital and labor income to maximize the...

This paper provides general and empirically implementable sufficient statistics formulas for optimal nonlinear tax systems in the presence of preference heterogeneity. We study unrestricted tax systems on income and savings (or other commodities) that implement the optimal direct-revelation...

In this paper, we examine Ricardian equivalence of debt and tax finance in a world in which taxes are not lump-sum but are levied on risky labor income. First, we show that the marginal propensity to consume out of a tax cut, coupled with a future income tax increase, is positive under...

We explore the interaction between two facts. The first is that income is variable; the second is that the tax and transfer system transforms before tax income into after tax income in highly non-linear ways. The effect is to penalize (and reward) income variability in a manner which is both...

This paper applies a numerical optimization technique using microunit tax data to the problem of choosing the parameters of a flat-rate tax system, should one be desired. Our approach is to first formulate explicit objectives that a flat-rate tax might reasonably be designed to meet, such as...

The normative principle of benefit-based taxation has exerted substantial influence on many areas of public finance, but it has been largely set aside in the modern theoretical approach to optimal income taxation, where welfarist objectives dominate. A prerequisite for that gap to close is the...

This Handbook entry presents a conceptual, normative overview of the subject of taxation. It emphasizes the relationships among the main functions of taxation -- notably, raising revenue, redistributing income, and correcting externalities -- and the mapping between these functions and various...