Main Article Content

Aron Kiss
Magyar Nemzeti Bank (Central Bank of Hungary)
Vol. 2 No. 2 (2013), Articles, pages 100-118
Submitted: Sep 24, 2018 Published: Dec 30, 2013
Copyright How to Cite


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.

Article Details


Atkinson. Anthony B. (1990) ‘Public Economics and the Economic Public’, European Economic Review 34 (7): 225-248.

Bach, Stefan; Corneo, Giacomo and Viktor Steiner (2012) ‘Optimal top marginal tax rates under income splitting for couples’, European Economic Review 56(6): 1055-1069.

Bakos, Péter; Benczúr, Péter and Dóra Benedek (2008) ‘The elasticity of taxable income: Estimates and flat tax predictions using the Hungarian tax changes in 2005’, MNB Working Paper 2008 No.7.

Benczúr, Péter; Kátay, Gábor; Kiss, Áron; Reizer, Balázs and Szoboszlai Mihály (2011) ‘Analysis of changes in the tax and transfer system with a behavioral microsimulation model’, MNB Bulletin, October 2011.

Benczúr, Péter; Kátay, Gábor and Áron Kiss (2012) ‘Assessing changes of the Hungarian tax and transfer system: A general equilibrium microsimulation approach’, MNB Working Paper 2012 No.7.

Benczúr, Péter; Kiss, Áron and Pálma Mosberger (2013) ‘The elasticity of taxable income’, in K. Fazekas, P. Benczúr, and Á. Telegdy (eds) The Hungarian Labour Market 2013, Budapest: Hungarian Academy of Science.

Brewer, Mike; Saez, Emmanuel and Andrew Shephard (2010) ‘Means-testing and Tax Rates on Earnings’, in J. Mirrlees, S. Adam, T. Besley, R. Blundell, S. Bond, R. Chote, M. Gammie, P. Johnson, G. Myles and J. Poterba (eds) Dimensions of Tax Design: the Mirrlees Review, Oxford University Press, pp. 90-173.

Diamond, Peter (1998) ‘Optimal income taxation: An example with a U-shaped pattern of optimal marginal tax rates’, American Economic Review 61(1): 8-27.

Diamond, Peter and Emmanuel Saez (2011) ‘The Case for a Progressive Tax: From Basic Research to Policy Recommendations’, Journal of Economic Perspectives 25(4): 165-190.

Feldstein, Martin (1995) ‘The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act’, Journal of Political Economy 103(3): 551-572.

Giertz, Seth H. (2004) ‘Recent Literature on Taxable-Income Elasticities’, Technical Paper Series, Congressional Budget Office, Washington D.C.

Goolsbee, Austan (2000) ‘What happens when you tax the rich? Evidence from executive compensation’, Journal of Political Economy 208(2): 352-378.

Gruber, Jonathan and Emmanuel Saez (2002) ‘The Elasticity of Taxable Income: Evidence and Implications’, Journal of Public Economics 84: 1-32.

Kiss, Áron (2013) ‘Developments in the theory of optimal income taxation with applications to the Hungarian tax system’, Discussion Papers of the Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences, Budapest.

Kiss, Áron and Pálma Mosberger (2011) ‘The elasticity of taxable income of high earners: Evidence from Hungary’, MNB Working Paper 2011 No. 11.

Kleven, Henrik J.; Landais, Camille and Emanuel Saez (2010) ‘Taxation and International Migration of Superstars: Evidence from the European Football Market’, NBER Working Paper No. 16545.

Kleven, Henrik J.; Landais, Camille; Saez, Emanuel and Esben A. Schultz (2013) ‘Taxation and International Migration of Top Earners: Evidence from the Foreigner Tax Scheme in Denmark’, NBER Working Paper No. 18885.

Mankiw, N. Gregory; Weinzierl, Matthew C. and Danny Yagan (2009) ‘Optimal taxation in theory and practice’, Journal of Economic Perspectives 23(4): 147-74.

Mirrlees, James A. (1971) ‘An exploration in the theory of optimal income taxation’, Review of Economic Studies 38(2): 175-208.

Riihelä, Marja; Sullström, Risto and Matti Tuomala (2013) ‘Top incomes and top tax rates: Implications for optimal taxation of top incomes in Finland’, Tampere Economic Working Paper Series No. 88.

Saez, Emmanuel (2001) ‘Using elasticities to derive optimal income tax rates’, Review of Economic Studies 68(1): 205-229.

Saez, Emmanuel; Slemrod, Joel B. and Seth H. Giertz (2012) ‘The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review’, Journal of Economic Literature 50(1): 3-50.