q
The topic of discussion is dq / dy. To proceed from this point, it appears didactically useful to first restate the conventional reaction to the DMR, and then develop the new analysis.
A conventional reaction
The conventional reaction is that tax parameters may be indexed to national income, but are not indexed to personal income. The individual agent in the economy will not think that his change in income can affect national tax parameters. Hence dq / dy should be zero.
Let us use the Bentham tax function again. Let us assume that only exemption is indexed on national income, and in continuous form the indexation reads as x =
Y with
as a fixed value for a base year. Thus:
T[y] = Bentham[y,