| This dissertation presents an extensive study on optimal income tax mechanisms that is applicable to some general situations.; The first chapter provides a full characterization of the optimal tax mechanism, defined to be a pair of the optimal tax schedule and audit procedure, in a context with multiple income levels and in one with multiple income components respectively. It considers two different but equally reasonable assumptions as to what determines penalty amounts: unreported incomes or unpaid taxes. At the optimal mechanism, the tax schedule takes a regressive form kinked at some intermediate income level and the audit policy involves a random auditing with a cut-off rule. The feature of the optimal mechanism is not sensitive to the penalty assumptions. In a multiple income component context where there are two income components, tax schedule is not always regressive and the audit policy is not as simple as the one in the single component context. Here the optimal tax mechanism is sensitive to the penalty assumptions. Other things being equal, the tax authority is better off when penalty is based on the unreported income than when it is assessed by the unpaid tax. Comparing the multiple auditing setting with the single one, it shows that the former is not always preferred to the latter unless the difference in audit efficiencies is big enough.; The second chapter studies optimal income tax mechanisms in multi-agent settings. Imposing an audit capacity constraint on the model, it characterizes optimal mechanisms both in a situation of the single audit class and in a context of the multiple audit classes. When the tax authority faces the audit capacity constraint, the probability of auditing one agent should be dependent on the other agents' income reports. In addition, if the parameters for the individual rationality constraints are sufficiently high that the tax authority can collect a considerable portion of agents' income, the individual rationality constraint for the high income agent does not bind, which means that a new kind of rent is generated due to the capacity constraint. When there are multiple audit classes, it turns out that this rent is concentrated on the one class for which the marginal net revenue of auditing is lower. This implies an overall tax schedule may take a progressive form when the rent is concentrated on the class with lower income supports. It further shows that it is optimal for the tax authority to use the given audit capacity for all the audit classes together while applying a different audit procedure, and thus a distinct tax schedule to each class. |
