Optimal income taxation; Top incomes; German income tax
336 Öffentliches Finanzwesen
This paper provides formulas for optimal top marginal tax rates when couples are
taxed according to income splitting between spouses, consumption is taxed, and the skill distribution is unbounded. Optimal top marginal income tax rates are computed for
Germany using a dataset that includes the tax returns of all German top taxpayers. We
find that the optimal top marginal tax rate converges to about 2/3 and convergence
obtains at income levels that are substantially higher than those currently subject to the actual top tax rate.
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