Tax progression

• It is a common error to believe that flexible labour supply implies low marginal tax rates. Analysis shows the opposite, if anything.

• The effectiveness of incentives to earn taxable income varies greatly, between young and old and middle-aged, husbands and wives, highly and poorly educated, and more and less wealthy. A more subtle system could greatly improve the distribution of taxes and subsidies.

• High effective marginal tax (i.e. subsidy reduction) rates at low incomes are not wrong.