The Case For A Progressive Tax

1713 Words Oct 15th, 2014 7 Pages
The case for a progressive tax: from basic research to policy recommendations
Authors: Peter Diamond and Emmanuel Saez (2011)
The central of issue in policy making is the fair distribution of the tax burden; the tax should minimize the social welfare of the individual’s subjects to his or her own budget constraints. A large academic literature has developed models of optimal tax theory to cast light on the problem of optimal tax progressivity. This article has tried to explore the path from basic research results of optimal tax theory to formulating policy recommendations. Further it has cast light on taxation of very high earns, second the taxation of low earners and third, taxation of capital income.
The optimal tax theory typically suggests that the tax system should maximize a social welfare function subject to a government budget constraint, taking account that individuals respond to taxes and transfers. Redistributive taxes and transfers can negatively affect incentives to work, save and earn income but created the classical trade between equity and efficiency which is core problem in optimal income tax. Optimal tax analyses maximize social welfare as a function of individual utilities and sun of utilities in utilitarian case. Further optimal income tax theory is first a normative theory that shows how a social welfare objective combines with constraints on resources and behavioral response to tax policy recommendation. Firstly, the problem at hand, secondly, the…

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