Advanced

Taxation on labor income - A choice between efficiency and inequality?

Tømmerås, Ane LU (2016) NEKH01 20161
Department of Economics
Abstract
This thesis applies a model for optimal top taxation rate on all Scandinavian countries. The starting point is a theory by Saez, Piketty and Stantcheva limiting the possible change in behavior of taxpayers into three channels; labor supply, tax avoidance and compensation bargaining. I show that optimal top taxation rate depends on these three key elasticities and how they affect the tax system. The elasticities are derived from the literature and labor income taxation in the Scandinavian context is the focus of the article. The findings of this thesis is that compensation bargaining happens in the Scandinavian countries, and that it can be adjusted with higher top taxes, applied at a higher level of income than today. This can be done... (More)
This thesis applies a model for optimal top taxation rate on all Scandinavian countries. The starting point is a theory by Saez, Piketty and Stantcheva limiting the possible change in behavior of taxpayers into three channels; labor supply, tax avoidance and compensation bargaining. I show that optimal top taxation rate depends on these three key elasticities and how they affect the tax system. The elasticities are derived from the literature and labor income taxation in the Scandinavian context is the focus of the article. The findings of this thesis is that compensation bargaining happens in the Scandinavian countries, and that it can be adjusted with higher top taxes, applied at a higher level of income than today. This can be done without any larger dead weight losses through labor supply or tax avoidance. I suggest an income tax schedule with smaller and less salient jumps to remove compensation bargaining as an inefficient behavior without creating incentives to increase tax avoidance. (Less)
Please use this url to cite or link to this publication:
author
Tømmerås, Ane LU
supervisor
organization
course
NEKH01 20161
year
type
M2 - Bachelor Degree
subject
keywords
labor taxation, labor supply, tax avoidance, compensation bargaining, optimal taxation, elasticities
language
English
id
8891333
date added to LUP
2016-09-09 16:07:01
date last changed
2016-09-09 16:07:01
@misc{8891333,
  abstract     = {This thesis applies a model for optimal top taxation rate on all Scandinavian countries. The starting point is a theory by Saez, Piketty and Stantcheva limiting the possible change in behavior of taxpayers into three channels; labor supply, tax avoidance and compensation bargaining. I show that optimal top taxation rate depends on these three key elasticities and how they affect the tax system. The elasticities are derived from the literature and labor income taxation in the Scandinavian context is the focus of the article. The findings of this thesis is that compensation bargaining happens in the Scandinavian countries, and that it can be adjusted with higher top taxes, applied at a higher level of income than today. This can be done without any larger dead weight losses through labor supply or tax avoidance. I suggest an income tax schedule with smaller and less salient jumps to remove compensation bargaining as an inefficient behavior without creating incentives to increase tax avoidance.},
  author       = {Tømmerås, Ane},
  keyword      = {labor taxation,labor supply,tax avoidance,compensation bargaining,optimal taxation,elasticities},
  language     = {eng},
  note         = {Student Paper},
  title        = {Taxation on labor income - A choice between efficiency and inequality?},
  year         = {2016},
}