Economy and Asymmetric Information: Mirrleesian Optimal Taxation as an Asymmetric Information Problem

Josheski, Dushko and Boskov, Tatjana and Zezova, Aleksandra (2023) Economy and Asymmetric Information: Mirrleesian Optimal Taxation as an Asymmetric Information Problem. International Journal of Business and Social Science, 14 (1). pp. 36-50. ISSN 2219-1933 (Print), 2219-6021 (Online)

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Abstract

In this paper Mirrleesian optimal taxation will be reviewed. Models in optimal tax theory typically posit that the tax
system should maximize a social welfare function subject to a government budget constraint, considering how
individuals respond to taxes and transfers. James Mirrlees (1971) launched the second wave of optimal tax models
by suggesting a way to formalize the planner’s problem that deals explicitly with unobserved heterogeneity among
taxpayers.There are static and dynamc versions of this model and we will review them or introduce them in this
paper. Social welfare is larger when resources are more equally distributed, but redistributive taxes and transfers
can negatively affect incentives to work and earn income in the first place. This creates the classical trade-off
between equity and efficiency which is at the core of the optimal labor income tax problem.We will describe main
theoretical findings in this literature as well as numerical examples with their policy implications.

Item Type:	Article
Subjects:	Social Sciences > Economics and business
Divisions:	Faculty of Tourism and Business Logistics
Depositing User:	Tatjana Boskov
Date Deposited:	23 Jan 2024 10:35
Last Modified:	23 Jan 2024 10:35
URI:	https://eprints.ugd.edu.mk/id/eprint/33273

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