This Handbook entry presents a conceptual, normative overview of the subject of taxation. It emphasizes the relationships among the main functions of taxation—notably, raising revenue, redistributing income, and correcting externalities—and the mapping between these functions and various...

In many OECD countries, statutory corporate tax rates are lower than personal income tax rates. The present paper argues that this tax rate differentiation is an optimal tax policy if there are problems of asymmetric information between investors and firms in the capital market. The reduction of...

In a number of high-income countries over the past few decades there has been a large growth in income inequality and at the same time a shift in the burden of taxation from the top to the middle of the income distribution. This paper applies the theory of optimal piecewise linear taxation to...

This paper provides a new and improved measure of the marginal cost of public funds (MCF). It is based on a benchmark tax which is distributionally neutral and non-distortive. This is in contrast to the MCF-measure used in the previous literature, that has used the regressive uniform lump-sum...

We solve a large class of multidimensional adverse selection problems with one observed action, to derive the nonlinear optimal income tax schedule when individuals differ along multiple unobserved characteristics. Based on a perturbation of the optimal allocation, our method allows individuals...