AP Micro & MacroPublic Finance & Taxation
Marginal Tax Rate
The marginal tax rate is the tax rate applied to the next dollar of income earned.
In a progressive system it is the rate of your top bracket. It drives incentives to work and invest because it determines how much of additional income you keep. It is usually higher than the average tax rate.
Formula / Example
Marginal tax rate = Δtax paid ÷ Δincome.