This paper examines the properties of the optimal nonlinear income tax when preferences are quasi-linear in leisure and individuals differ in their ability and their preferences for leisure. The government seeks to redistribute income. It can perfectly observe the level of endogenous income but...

This paper addresses the question of the optimal taxation of labour and interest income in an overlapping generations model with two unobservable characteristics, ability and inheritance. We assume realistically that saving can only be taxed anonymously, whereas the tax on labour earnings can be...