On the optimal income taxation: Some further numerical results

Using numerical calculations we show in the optimal income tax model that a realistic value for the elasticity of substitution between consumption and leisure (?=0.5) leads to conclusions different from some of those drawn by Mirrlees (1971) and Atkinson (1973). The marginal tax rates are not so low and the shape of the tax schedule is for a great majority of the population substantially nonlinear. A new feature in our calculations is that both results come out without going to maximin, as done by Atkinson (1973). We study in special cases the locality of the zero limit of the marginal tax rate at the upper end of the ability distribution and we achieve a very definite conclusion: this result is really very local. We also present an interesting approximation result concerning the relationship between the level of the government revenue and the marginal tax rate for individuals with high ability. An important methodological remark analogous to Sen's critique on the ethical measures of inequality is made on the interpretation of optimal income tax calculations.