DP8435 | Optimal top marginal tax rates under income splitting for couples

Publication Date

13/06/2011

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Abstract

This paper analytically derives 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 then quantified for Germany. Estimation results based on an exhaustive dataset of top taxpayers suggest that the optimal asymptotic tax rate is close to 2/3 and only applies to incomes that are considerably higher than those currently subject to the actual top tax rate.