This paper introduces an income inequality externality into the classical optimal non-linear income taxation model, noting that such an externality arises if income inequality affects pertinent societal outcomes. There are two new mathematical terms in the optimal taxation formula, corresponding...

Firms are usually better informed than tax authorities about market conditions and the potential profits of competitors. They may try to exploit this situation by underreporting their own taxable profits. The tax authority could offset firms' informational advantage by adopting "smarter" audit...

Research in behavioral economics has uncovered the widespread phenomenon of people making decisions against their own good intentions. In these situations, the government might want to intervene, indeed individuals might want the government to intervene, to induce behavior that is closer to what...