Comparative Statics of Optimal Nonlinear Income Taxation in the Presence of a Publicly Provided Input

Abstract

Comparative static properties of the solution to an optimal nonlinear income tax problem are provided for a model in which the government both designs a redistributive income tax schedule and provides a public input into a nonlinear production process. These assumptions imply that wage rates are endogenous. The endogeneity of the wages necessitates taking account of general equilibrium effects of changes in the parameters of the model that are not present when the technology is linear.