Creator

• Heathcote, Jonathan
• Tsujiyama, Hitoshi

Series

• Staff report (Federal Reserve Bank of Minneapolis. Research Department)

Issue number

• 626

Date Created

• 2021-07-30

Abstract

• We review methods used to numerically compute optimal Mirrleesian tax and transfer schedules in heterogeneous agent economies. We show that the coarseness of the productivity grid, while a technical detail in terms of theory, is critical for delivering quantitative policy prescriptions. Existing methods are reliable only when a very fine grid is used. The problem is acute for computational approaches that use a version of the Diamond-Saez implicit optimal tax formula. If using a very fine grid for productivity is impractical, then optimizing within a flexible parametric class is preferable to the non-parametric Mirrleesian approach.

Subject (JEL)

• H24 - Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
• H21 - Taxation and Subsidies: Efficiency; Optimal Taxation

Keyword

• Ramsey taxation
• Optimal income taxation
• Mirrlees taxation

Date Modified

• 07/30/2021

Corporate Author

• Federal Reserve Bank of Minneapolis. Research Division

Publisher

• Federal Reserve Bank of Minneapolis

Resource type

• Research Paper

DOI

•  https://doi.org/10.21034/sr.626

License

• Creative Commons BY-NC Attribution-NonCommercial 4.0 International

Relationships

In Collection:

• Staff Reports

Zipped Files

Download a zip file that contains all the files in this work.

Items

Thumbnail	Title	Date Uploaded	Visibility	Actions
	sr626.pdf	2021-07-30	Public	Press to Select an action Download