Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235941 
Year of Publication: 
2021
Series/Report no.: 
ifo Working Paper No. 358
Publisher: 
ifo Institute - Leibniz Institute for Economic Research at the University of Munich, Munich
Abstract: 
The Covid-19 pandemic has led to an increase in public debt in most countries. This will increase fiscal pressure in the future. We study how the shape of the optimal nonlinear income tax schedule is affected by this increase in fiscal pressure. We calibrate the workhorse optimal income tax model to five European countries: France, Germany, Italy, Spain and the UK. We apply the inverse-optimum approach to the pre-Covid-19 economies. We then ask how the schedule of marginal and average tax rates should be optimally adjusted to the increase in fiscal pressure. For all countries, we find that the increase in fiscal pressure leads to a less progressive optimal tax schedule both in terms of marginal and average tax rates.
Subjects: 
Fiscal pressure
optimal taxation
JEL: 
H21
H23
Document Type: 
Working Paper

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