Umeå Economic Studies,
Umeå University, Department of Economics

Abstract: This paper is the first to integrate corruption with respect to tax collection in a Mirrleesian model of optimal redistributive taxation. The analysis starts with a simple two-type model, showing that the optimal marginal tax structure resembles that of the original Stiglitz (1982) model, albeit for different reasons. We also extend the analysis to a framework with many types and present policy rules for marginal taxation over the whole ability distribution. The marginal income tax rates are all non-negative and can be expressed in terms of two key determinants: the distributional weights attached to taxpayers, and how the private cost to evade taxes varies with the taxpayers’ income. Finally, we consider the role of government expenditures directly targeting the incentives of the tax collector, such that these public expenditures and the optimal tax structure are implemented simultaneously.

Keywords: Redistribution; taxation; corruption

JEL-codes: D73; H21; H26

Language: English

29 pages, First version: December 18, 2023. Revised: October 24, 2024.

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