DP8435 Optimal top marginal tax rates under income splitting for couples

Author(s): Stefan Bach, Giacomo Corneo, Viktor Steiner
Publication Date: June 2011
Keyword(s): optimal income tax, top incomes
JEL(s): D31, D72, H23
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8435

This paper analytically derives optimal top marginal tax rates when couples are taxed according to income splitting between spouses, consumption is taxed, and the skill distribution is unbounded. Optimal top marginal income tax rates are then quantified for Germany. Estimation results based on an exhaustive dataset of top taxpayers suggest that the optimal asymptotic tax rate is close to 2/3 and only applies to incomes that are considerably higher than those currently subject to the actual top tax rate.