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Optimal Income Taxations with Information Asymmetry: The Lagrange Multiplier Approach

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  • Xiaojun Zhao

    (School of Economics, Peking University)

Abstract

This paper considers a general class dynamic optimal problem with incen- tive compatible constraints. The first-order conditions are derived using the Lagrange multiplier method. Applied the methods developed here, the optimal taxation problems studied by Mirrlees (1971) and Golosov et al. (2003) for more general form utility function are reexamined in this paper. The explicit solutions for optimal income taxations are derived in this paper. Finally, we present numerical solutions for optimal income taxations.

Suggested Citation

  • Xiaojun Zhao, 2015. "Optimal Income Taxations with Information Asymmetry: The Lagrange Multiplier Approach," Annals of Economics and Finance, Society for AEF, vol. 16(1), pages 199-229, May.
    • Handle: RePEc:cuf:journl:y:2015:v:16:i:1:zhao
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    References listed on IDEAS

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    More about this item

    Keywords

    Incentive compatible constraint; Asymmetric information; Lagrange functional;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • H00 - Public Economics - - General - - - General

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