Abstract
The dominant model for income taxation in the public finance literature is the classical model of skills (Mirrlees, 1971).
Until recently, an influential number of works using this model seemed to support declining marginal tax rates at high
income levels. In this paper we use Diamond's (1996) methodology in order to explore the critical assumptions that lead
to increasing or decreasing marginal tax rates. We find that with a lognormal distribution of skills and zero income effects
there is a case for increasing marginal tax rates at high income levels. By performing a Kernel estimation to Israeli data
we find empirical support for the lognormal distribution of skills.
Until recently, an influential number of works using this model seemed to support declining marginal tax rates at high
income levels. In this paper we use Diamond's (1996) methodology in order to explore the critical assumptions that lead
to increasing or decreasing marginal tax rates. We find that with a lognormal distribution of skills and zero income effects
there is a case for increasing marginal tax rates at high income levels. By performing a Kernel estimation to Israeli data
we find empirical support for the lognormal distribution of skills.
| Original language | English |
|---|---|
| Place of Publication | Jerusalem, Israel |
| Publisher | Bank of Israel, Research Department |
| Number of pages | 38 |
| State | Published - 1997 |
Bibliographical note
"March 1997."Caption title.
