This handbook chapter reviews recent developments in the theory of optimal labor income taxation. We emphasize connections between theory and empirical work that were initially lacking from optimal income tax theory. First, we provide historical and international background on labor income...

This paper applies the methods of Gruber and Saez (2002) to a panel of tax returns spanning 1979 through 2001 in order to examine the sensitivity of the elasticities of taxable and broad income to an array of factors. The paper finds that that Gruber and Saez’s approach yields an estimated...