This thesis introduces time dimension into income taxation. Economic theory derives optimal
income taxation by explaining individual behaviors through utility and social welfaremaximization.
We argue that observing collective behaviors through the distribution of number of
returns and the revenue themselves offers a viable alternative. Our study is confined toUS joint
returns individual income tax from 1996 to 2008. We introduce a combination of cubic spline
fit to data and Pareto distribution to estimate the revenue and number of returns distributions.
Normalization admits comparative study of year to year changes in those distributions. We
discover that the tax burden of low income taxpayers has decreased consistently, while the conventional
rule of inflation indexation of tax bracket only is applied. This is an instability in the
sense that the distribution of revenue transforms into a qualitatively different distribution over
time. We derive the control of the instability. Control using brackets only implies optimal brackets
arewidened over the peak of the revenue and shifted to the right for higher brackets. Control
using rates only implies an overall reduction of marginal tax rates. Control using both brackets
andmarginal rates combines these two features. Some brackets are removed and consequently
marginal rates for some taxpayers are reduced. Dependency of the distribution of number of
returns to tax liability and tax parameters proves to have insignificant effect on the optimal tax
parameters. Fairness is defined in the literature as tax liability per unit income. Control of the
instability togetherwith a uniformchange in fairness is addressed. There is a trade-off between
controlling instability and ensuring constant change in the fairness of the tax system. We derive
the optimal brackets and marginal rates that minimize this trade-off. As expected, the general
rule for optimality is that marginal tax rates are barely changed to provide constant change in
fairness. Yet, small adjustment of the brackets provides control of the instability.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:wits/oai:wiredspace.wits.ac.za:10539/12378 |
| Date | 04 February 2013 |
| Creators | Andrianjafinandrasana, Misaina Navaloniana |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
| Format | application/pdf, application/pdf, application/pdf |
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