We consider the optimal income tax problem when income differences are due to differences in abilities and in preferences between consumption and leisure among individuals. We model this problem as an optimal control problem and develop a numerical method for solving it. The method is based on...

This paper considers the problem of optimal income taxation when individuals are assumed to differ with respect to their earnings potential and work preferences. A numerical method for solving this two-dimensional problem has been developed. The problem is difficult to solve, but we managed to...