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Equilibrium in a Production Economy with an Income Tax

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  • Coleman, Wilbur John, II

Abstract

This paper develops a method to study an infinite-horizon production economy distorted by a state-dependent income tax. This setting permits taxes to depend on the capital stock, an endogenous state variable, and thus captures situations where the evolution for capital and taxes is jointly determined. To solve this model, the consumption function is represented as a fixed point of a nonlinear monotone operator that is defined such that its nth iteration computes the consumption function n steps away from the horizon for a corresponding finite-horizon economy. The oparator's monotonicity is exploited in proving the existence of, and constructing, an equilibrium. Copyright 1991 by The Econometric Society.

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Bibliographic Info

Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 59 (1991)
Issue (Month): 4 (July)
Pages: 1091-1104

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Handle: RePEc:ecm:emetrp:v:59:y:1991:i:4:p:1091-1104

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  1. Gregory W. Huffman & Jeremy Greenwood, 1989. "Tax analysis in a dynamic stochastic model: on measuring Harberger triangles and Okun gaps," Research Working Paper 89-01, Federal Reserve Bank of Kansas City.
  2. McKenzie, Lionel W, 1981. "The Classical Theorem on Existence of Competitive Equilibrium," Econometrica, Econometric Society, vol. 49(4), pages 819-41, June.
  3. Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, vol. 55(3), pages 491-513, May.
  4. Becker, Robert A., 1985. "Capital income taxation and perfect foresight," Journal of Public Economics, Elsevier, vol. 26(2), pages 147-167, March.
  5. Goulder, Lawrence H. & Summers, Lawrence H., 1989. "Tax policy, asset prices, and growth : A general equilibrium analysis," Journal of Public Economics, Elsevier, vol. 38(3), pages 265-296, April.
  6. Benveniste, L M & Scheinkman, J A, 1979. "On the Differentiability of the Value Function in Dynamic Models of Economics," Econometrica, Econometric Society, vol. 47(3), pages 727-32, May.
  7. Brock, William A & Turnovsky, Stephen J, 1981. "The Analysis of Macroeconomic Policies in Perfect Foresight Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(1), pages 179-209, February.
  8. Timothy J. Kehoe & David K. Levine & Paul Romer, 1992. "On Characterizing Equilibria of Models with Externalities and Taxes as Solutions to Optimization Problems," Levine's Working Paper Archive 124, David K. Levine.
  9. Richard Beals & Tjalling C. Koopmans, 1967. "Maximizing Stationary Utility in a Constant Technology," Cowles Foundation Discussion Papers 229, Cowles Foundation for Research in Economics, Yale University.
  10. Abel, Andrew B & Blanchard, Olivier J, 1983. "An Intertemporal Model of Saving and Investment," Econometrica, Econometric Society, vol. 51(3), pages 675-92, May.
  11. Bizer, David S & Judd, Kenneth L, 1989. "Taxation and Uncertainty," American Economic Review, American Economic Association, vol. 79(2), pages 331-36, May.
  12. Brock, William A. & Mirman, Leonard J., 1972. "Optimal economic growth and uncertainty: The discounted case," Journal of Economic Theory, Elsevier, vol. 4(3), pages 479-513, June.
  13. Danthine, Jean-Pierre & Donaldson, John B., 1985. "A note on the effects of capital income taxation on the dynamics of a competitive economy," Journal of Public Economics, Elsevier, vol. 28(2), pages 255-265, November.
  14. Levhari, David & Srinivasan, T N, 1969. "Optimal Savings under Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 36(106), pages 153-63, April.
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