The Case for a Progressive Tax: From Basic Research to Policy Recommendations

Journal of Economic Perspectives—Volume 25, Number 4—Fall 2011—Pages 165–190The Case for a Progressive Tax: From Basic Research to Policy †RecommendationsPeter Diamond and Emmanuel Saezhhe fair distribution of the tax burden has long been a central issue in policy-e fair distribution of the tax burden has long been a central issue in policy-mmaking. A large academic literature has developed models of optimal tax aking. A large academic literature has developed models of optimal tax T ttheorheory to cast light on the problem of optimal tax progressivityy to cast light on the problem of optimal tax progressivity. In this . In this paperpaper, we explore the path from basic research results in optimal tax theor, we explore the path from basic research results in optimal tax theory to y to formulating policy recommendations.formulating policy recommendations.Models in optimal tax theorModels in optimal tax theoryy typically posit that the tax system should maximize a typically posit that the tax system should maximize a ssocial welfare function subject to a government budget constraint, taking into accountocial welfare function subject to a government budget constraint, taking into account tthat individuals respond to taxes and transfers. Social welfare is larger when resourceshat individuals respond to taxes and transfers.