@article {10.34196/ijm.00261,
article_type = {journal},
title = {Combining Microsimulation and Numerical Maximization to Identify Optimal Tax-Transfer Rules},
author = {Colombino, U and Islam, N},
volume = 15,
number = 2,
year = 2022,
month = {aug},
pub_date = {2022-08-31},
pages = {4-43},
citation = {IJM 2022;15(2):4-43},
doi = {10.34196/ijm.00261},
url = {https://doi.org/10.34196/ijm.00261},
abstract = {In this paper we propose a computational approach to empirical optimal taxation. We develop and estimate a microeconometric model that is run to simulate household labour supply decisions and the implied economic, fiscal and welfare effects. The microsimulation is embedded into a numerical optimization routine that identifies the tax-transfer rule that maximizes a social welfare function. We consider the class of tax-transfer rules where net available income is computed as a 4th degree polynomial transformation of taxable income plus a transfer. We present the results for six European countries: Germany, France, Italy, Luxembourg, Spain and the United Kingdom. For most values of the inequality aversion parameter \textit{k} that characterizes the social welfare function, the optimized rules provide a higher social welfare than the current rule, with the exception of Luxembourg. The optimized tax-transfer rules are close to a Flat Tax plus a Universal Basic Income (or equivalently a Negative Income Tax).},
journal = {IJM},
issn = {1747-5864},
publisher = {International Journal of Microsimulation},
}