Elements in Public Economics
From the 1980s onward, income inequality increased
in many advanced countries. It is very difficult to account for the rise in income inequality using the standard labour supply/demand
explanation. Fiscal redistribution has become less effective in compensating increasing inequalities since the 1990s. Some
of the basic features of redistribution can be explained through the optimal tax framework developed by J. A. Mirrlees in
1971. This Element surveys some of the earlier results in linear and nonlinear taxation and produces some new numerical results.
Given the key role of capital income in the overall income inequality, it also considers the optimal taxation of capital income.
It examines empirically the relationship between the extent of redistribution and the components of the Mirrlees framework.
The redistributive role of factors such as publicly provided private goods, public employment, endogenous wages in the overlapping
generations model and income uncertainty are analysed.
1. Introduction; 2. Optimal linear labour income taxation; 3.
The optimal nonlinear labour income tax; 4. Optimal top marginal rates and quasi-linear preferences in consumption; 5. Numerical
optimal nonlinear tax schedules; 6. Optimal separable capital income and labour income taxation; 7. The empirical relationship
between the extent of redistribution and the components of the Mirrlees framework; 8. Other considerations on redistribution;
Examines the relationship between the extent of redistribution and the components of the Mirrlees framework.