Title

The optimal exemption

Document Type

Article

Publication Date

1992

Department

Economics

Abstract

This paper uses simulations to find the optimal tax rate and exemption under a flat-rate income tax. Hall and Rabushka, Lindsey, and recently presidential candidate Jerry Brown have argued that the current income tax system should be replaced by a flat tax with a low rate and a modest exemption. This paper shows that assuming a low rate and exemption to be optimal generally is unwarranted. In addition this flat tax is compared to the linear income tax.