Does higher tax morale imply higher optimal labor income tax rate?

We analyze the impact of tax morale on optimal progressive labor income taxation. Only universal basic income is financed from a linear tax and the financing of public goods is neglected. Each individual supplies labor and (un)declares earning, depending on his labor disutility and tax morale. Limiting the utilitarianism to the poorer parts of the population (defined by the inclusion share), the optimal tax rate is an increasing function of the tax morale and a decreasing function of the inclusion share, provided that the average wage of those included is higher than 0.54 times the average wage

A Simple Model of Tax-Favored Retirement Accounts

To defend myopic workers against themselves, the government introduces a mandatory system but to help savers, it adds tax-favored retirement accounts. In a very simple model, where benefits are proportional to contributions, we compare three extreme systems: (i) the pure mandatory system, (ii) the asymmetric system, where only the savers participate in the voluntary system, (iii) the symmetric system, where both types participate proportionally to their wages. The symmetric voluntary system is welfare-superior to the asymmetric one as well as to the pure mandatory system, which in turn are equivalent to each other.mandatory pensions, tax-favored retirement accounts, voluntary contributions, subsidies.

Underreported earnings and age-specific income redistribution in post-socialist economies

We analyze underreported earnings and age-specific income redistribution in postsocialist economies. Pensions, other transfers and public expenditures are financed from contributions and wage taxes, respectively. We derive the reported earnings and savings from individual utility maximization, when workers overly discount the future, obtain partial satisfaction from reporting earnings, cannot be excluded from the use of public services. The government maximizes a utilitarian social welfare function, corrected for discounting and taking into account the utility of public services. An optimal proportional pension system - complemented by appropriate means-testing - provides higher welfare than any system containing a significant flat component.reporting earnings, proportional (contributional) pension, flat pension, progressive wage tax, redistribution

Higher tax morale implies a higher optimal income tax rate

We analyze the impact of (exogenous) tax morale on the optimal design of progressive income taxation. In our model, only universal basic income (transfer) is financed from a linear income tax and the financing of public goods is neglected. Each individual supplies labor and (un)declares earning, depending on his labor disutility and tax morale, respectively. Limiting the utilitarianism to the poorer parts of the population (defined by the welfare share), the optimal tax rate is an increasing function of the tax morale and a decreasing function of the welfare share.tax morale, progressive income tax, undeclared earning, labor supply, income redistribution

Tax Morality and Progressive Wage Tax

We analyze the impact of tax morality on progressive income (wage) taxation. We assume that transfers (cash-back) and public expenditures are financed from linear wage taxes. We derive the reported wages from individual utility maximization, when individuals obtain partial satisfaction from reporting wages (depending on their tax morality), and cannot be excluded from the use of public services. The government maximizes a utilitarian social welfare function, also taking into account the utility of public services. The major conjecture is illustrated by numerical examples: the optimal degree of redistribution and the size of the public services are increasing functions of the individuals' tax morality.tax moral, reporting earnings, progressive income tax, welfare economics

Underreported Earnings and Old-Age Pension: An Elementary Model

This paper analyzes the interconnections of underreported earnings, savings and oldage pension with the help of a most simple, elementary model. The workers can be divided into three groups: 1) well-paid who report their full earnings, 2) well-paid who report only the minimum earnings (evaders) and 3) the poorly paid. We assume that the evaders save a significant part of their hidden earnings for their old age. We compare three pension systems of equal size: (i) the proportional, (ii) the proportional plus basic pension and (iii) the proportional with means testing. Our major result is as follows: if the evaders can be recognized and excluded, then the means-tested system is superior to the basic system.reporting earnings, proportional pensions, basic pensions, meansassisted pensions