Does Higher Tax Morale Imply Higher Optimal Labor Income Tax Rate?

András Simonovits

doi:10.2478/danb-2013-0005

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Does Higher Tax Morale Imply Higher Optimal Labor Income Tax Rate?

DANUBE

Volume 4 (2013): Issue 2 (June 2013)

By: András Simonovits

Open Access

|Jul 2013

Abstract

We analyze the impact of tax morale on optimal progressive labor income taxation. Only universal basic income is financed from a linear tax and the financing of public goods is neglected. Each individual supplies labor and (un)declares earning, depending on his labor disutility and tax morale. Limiting the utilitarianism to the poorer parts of the population (defined by the inclusion share), the optimal tax rate is an increasing function of the tax morale and a decreasing function of the inclusion share, provided that the average wage of those included is higher than 0.54 times the average wage.

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