The Dynamic Optimization Model of Individual Income Tax

Abstract

Individual income tax is the General term of legal norms which adjust the social relations that happened in the collection or management personal income tax between the tax authorities and the natural person. A dynamic optimization model was proposed to analysis the personal income tax from macro view, which took the personal income tax as model parameter, optimized the investment and consumption, and aimed at increasing the effectiveness of consumption. The solution of the model suggested that high earners should pay more taxes in order to increase their happiness index, while low-income individuals should pay less, even pay no tax.