The optimal top marginal tax rate: Application to Hungary

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Aron Kiss

Abstract

The paper applies recent developments in the theory of optimal income taxation to the Hungarian personal income tax system. The main conclusion is that the optimal top marginal tax rate in Hungary is likely to be higher, perhaps substantially, than the actual rate. It is discussed how this result depends on the parameters describing labor-supply behavior, the income distribution, and the redistributive preferences of society.

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Author Biography

Aron Kiss, Magyar Nemzeti Bank (Central Bank of Hungary)

Currently a policy analyst at the European Commission, DG ECFIN, I hold a PhD in Economics from the Free University Berlin. I worked at the Hungarian Ministry of Finance (Research Deptartment), the Office of the Fiscal Council and the Central Bank of Hungary. The work I am submitting was done at the Central Bank of Hungary.

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