This paper solves an often neglected problem of efficient taxation where the policymaker is interested in minimizing the dead weight burden imposed on the society by labor income taxes. Specifically, it argues that the efficient tax function assumes the form of a step function. Furthermore, it...

In this paper, we describe an elementary, fully implementable, and revenue neutral randomizing mechanism that leads to a Pareto improvement over allocations induced by labor income tax functions. We illustrate, by providing a theoretical example, that our mechanism can be applied to optimal tax...