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Optimal Top Marginal Tax Rates under Income Splitting for Couples

Diskussionspapiere extern

Stefan Bach, Giacomo Corneo, Viktor Steiner

Berlin: Freie Univ. Berlin, FB Wirtschaftswiss., 2011, 24 S.
(Discussion Paper / School of Business & Economics ; 2011,21)


This paper provides formulas for optimal top marginal tax rates when couples are taxed according to income splitting between spouses, consumption is taxed, and the skill distribution is unbounded. Optimal top marginal income tax rates are computed for Germany using a dataset that includes the tax returns of all German top taxpayers. We find that the optimal top marginal tax rate converges to about 2/3 and convergence obtains at income levels that are substantially higher than those currently subject to the actual top tax rate.

Stefan Bach

Research Associate in the Public Economics Department

JEL-Classification: D31;D72;H23
Keywords: Optimal income taxation, Top incomes, German income tax
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