Abstract
The second numerator covariance in (11) vanishes when t'(wl) is a constant, highlighting the inefficiency of liner tax schedules which confront individuals having high and low labour supply elasticities with the same marginal tax rate. The other major difference is that the remaining covariance is between marginal utility and income in (13) but taxes in (11). This difference emphasizes another ground for the superiority of non-linear over linear tax schedules. Non-linear tax functions can increase collections disproportionately where the marginal loss in social welfare, u 1 is lowest.
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