Calculating Optimal Nonlinear Taxes Using Censored Income Data

Abstract

Approximating the skill distribution via observed incomes is a central aspect of estimating the optimal redistributive taxes. Emerging economies may exhibit high minimum wage take-up rates, hiding some of the heterogeneity in skill distribution. This paper shows in the context of Turkey that accounting for the minimum wage policy when approximating skills considerably alters the estimates of optimal redistributive income taxes. Once the mass around the minimum wage is treated as left censored, the optimal tax scheme is significantly more redistributive in comparison to assuming no censoring. This is because allocating some of the mass around the minimum wage towards the lower parts of the skill distribution reduces the total skill stock and increases the standard deviation of the distribution. Consequently, the optimal marginal income taxes become higher, especially for the middle-skill group.

Keywords

• Optimal taxation
• Redistribution
• Censored data

Optimal Doğrusal-Olmayan Vergilerin Sansürlü Gelir Verisi Kullanılarak Hesaplanması

Öz

İşgücü becerilerinin gözlemlenen gelir verisiyle tahmini, optimal geridağıtımcı vergilerin hesaplanmasında merkezi bir role sahiptir. Gelişmekte olan ülkelerde asgari ücretle çalışan işgücü oranının yüksek olması, beceri dağılımındaki farklılıkları gizleyebilmektedir. Bu makale, Türkiye örneği için, asgari ücret uygulamasıyla ortaya çıkan veri sansürlenmesi göz önüne alındığında, hesaplanan optimal geridağıtımcı vergilerin ciddi ölçüde değiştiğini göstermektedir. Asgari ücret civarında kalan gelir verisi, soldan sansürlenmiş olarak kabul edildiğinde hesaplanan optimal vergi rejimi, verinin sansürlenmemiş olduğu varsayımı altında hesaplanan optimal vergi rejimine göre önemli ölçüde daha yüksek bir gelir transferi öngörmektedir. Bu sonucun temel sebebi, sansürlenmiş verinin bir kısmının daha düşük beceri seviyelerine dağıtılması sonucunda tahmin edilen toplam beceri stoğunun azalıp, beceri dağılımındaki standart sapmanın artmasıdır. Buna bağlantılı olarak, optimal marjinal gelir vergileri, özellikle orta gelir grubu için, daha yüksek hesaplanmıştır.

Anahtar Kelimeler

• Optimal vergi
• Geridağıtım
• Sansürlenmiş veri

Kaynakça

1. Auriol, E. & Warlters, M. (2005). Taxation Base in Developing Countries. Journal of Public Economics, 89(4), 625-646.
2. Avdiu, B. (2019). Optimal Capital and Labor Income Taxation in Small and Developing Countries. Working Paper.
3. Besley, T. & Persson, T. (2014). Why Do Developing Countries Tax So Little?. Journal of Economic Perspectives, 28(4), 99-120.
4. Chetty, R. (2012). Bounds on Elasticities with Optimization Frictions: A Synthesis of Micro and Macro Evidence on Labor Supply. Econometrica, 80(3), 969-1018.
5. Delignette-Muller, M. L. & Dutang, C. (2015). Fitdistrplus: An R Package for Fitting Distributions. Journal of Statistical Software, 64(4), 1-34.
6. Ebert, U. (1992). A Reexamination of the Optimal Nonlinear Income Tax. Journal of Public Economics, 49(1), 47-73.
7. Gordon, R. & Li, W. (2009). Tax Structures in Developing Countries: Many Puzzles and a Possible Explanation. Journal of Public Economics, 93(7-8), 855-866.
8. Hansen, E. (2021). Optimal Income Taxation with Labor Supply Responses at Two Margins: When is an Earned Income Tax Credit Optimal?. Journal of Public Economics, 195, 104365.

9. Jacobs, B. (2013). From Optimal Tax Theory to Applied Tax Policy. Finanzarchiv, 69(3), 338-389.
10. Jacquet, L., Lehmann, E. & der Linden, B. V. (2013). Optimal Redistributive Taxation with Both Extensive and Intensive Responses. Journal of Economic Theory, 148(5), 1770-1805.
11. Kanbur, R. & Tuomala, M. (1994). Inherent Inequality and the Optimal Graduation of Marginal Tax Rates. The Scandinavian Journal of Economics, 96(2), 275-282.
12. Mankiw, N. G., Weinzierl, M. & Yagan, D. (2009). Optimal Taxation in Theory and Practice. Journal of Economic Perspectives, 23(4), 147-174.
13. Mirrlees, J. A. (1971). An Exploration in the Theory of Optimum Income Taxation. The Review of Economic Studies, 38(2), 175-208.
14. OECD. (2022). Minimum Wages in Times of Rising Inflation. Technical Report, OECD.
15. Piketty, T. & Qian, N. (2009). Income Inequality and Progressive Income Taxation in China and India, 1986-2015. American Economic Journal: Applied Economics, 1(2), 53-63.
16. Saez, E. (2001). Using Elasticities to Derive Optimal Income Tax Rates. The Review of Economic Studies, 68(1), 205-229.
17. Saez, E. & Stantcheva, S. (2018). A Simpler Theory of Optimal Capital Taxation. Journal of Public Economics, 162, 120-142.