Optimal Labor Income Taxation in Poland - the Case of High Income Earners

Abstract

In this paper we present solutions to the optimal taxation problem in Poland in the case of high income earners. We characterize the actual data provided by the Polish Tax Authority and show that it is thick-tailed in the upper end of the distribution. Specifically, we show that income distribution in Poland can be approximated with a Pareto distribution with parameter equal to 3:44; which makes the Saez’s formula applicable. We show that the value of the optimal marginal tax rates in Poland ranges between 16% and 60% for high income earners depending on the value of the elasticity with respect to the wage. Moreover, we show that the value of the optimal marginal tax rate for high income earners can be close 60% when one accepts - an empirically viable - relatively low value of the elasticity of labor supply with respect to the wage.