Laurent Simula (Uppsala University) on "Marginal Deadweight Loss with Nonlinear Budget Sets"

Speaker:  Laurent Simula - Uppsala University
  Wednesday, June 10, 2015 at 10:45 AM Sala Seminari, Vicolo Campofiore 2
Most theoretical work on how to calculate the marginal deadweight loss has been done for linear taxes and for variations in linear budget constraints. However, most income tax systems are nonlinear, generating nonlinear budget sets. A usual procedure to calculate the marginal deadweight loss for variations in nonlinear income taxes has been to linearize the nonlinear budget constraint. Our main theoretical result is that the overall curvature of the tax system plays is as important as the curvature of indifference curves when computing deadweight loss measures. Using numerical simulations calibrated on US data, we then show that the apparently innocuous linearization may lead to a substantially large overestimation of the marginal deadweight loss.
Title Format  (Language, Size, Publication date)
Paper  pdfpdf (it, 313 KB, 26/05/15)

Programme Director
Eugenio Peluso

External reference
Marcella Veronesi

Publication date
January 17, 2015