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Optimal nonlinear income taxation with productive government expenditure

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  • Lai, Ching-Chong
  • Liao, Chih-Hsing

Abstract

This paper develops an endogenous growth model with a production externality and nonlinear income taxation, and uses it to examine how the fiscal authority devises its nonlinear tax structure from the viewpoint of welfare maximization. It is found that, in the Barro (1990) model, Pareto optimality can be achieved if both policy instruments for the tax scalar and the extent of the tax progressivity/regressivity are set optimally.

Suggested Citation

  • Lai, Ching-Chong & Liao, Chih-Hsing, 2012. "Optimal nonlinear income taxation with productive government expenditure," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 66-77.
    • Handle: RePEc:eee:reveco:v:22:y:2012:i:1:p:66-77
    DOI: 10.1016/j.iref.2011.08.009
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    Cited by:

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    2. Minoru Watanabe & Yusuke Miyake & Masaya Yasuoka, 2015. "Public Investment Financed By Consumption Tax In An Aging Society," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 60(05), pages 1-17, December.
    3. Shieh, Jhy-yuan & Chen, Jhy-hwa & Chang, Shu-hua & Lai, Ching-chong, 2014. "Environmental consciousness, economic growth, and macroeconomic instability," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 151-160.
    4. Park, Hyun, 2013. "Do habits generate endogenous fluctuations in a growing economy?," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 54-68.
    5. Callado-Muñoz, Francisco J. & Hromcová, Jana & Utrero-González, Natalia, 2023. "Can buying weapons from your friends make you better off? Evidence from NATO," Economic Modelling, Elsevier, vol. 118(C).
    6. Guizhou Wang & Kjell Hausken, 2021. "Governmental Taxation of Households Choosing between a National Currency and a Cryptocurrency," Games, MDPI, vol. 12(2), pages 1-24, April.

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    More about this item

    Keywords

    Nonlinear income taxation; Optimal taxation; Endogenous growth;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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