Should Marginal Tax Rates Be Equalized Through Time?
AbstractThe author derives necessary and sufficient conditions for the intertemporal equalization of optimal tax rates. The conditions in the case of wage taxes include constant elasticity labor supply and constant relative risk aversion. Wage taxes should be low in times of relatively elastic labor supply or low risk aversion. The conditions in the case of capital taxes include perfect-foresight expectations and constant relative risk aversion. If foresight is imperfect, intertemporal equality will be impeded by a covariance term; if relative risk aversion is time-varying, next period's capital tax should have the same sign as this period's change in relative risk aversion. Copyright 1991, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Bibliographic InfoArticle provided by MIT Press in its journal Quarterly Journal of Economics.
Volume (Year): 106 (1991)
Issue (Month): 3 (August)
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Other versions of this item:
- Kingston, G., 1989. "Should Marginal Tax Rates Be Equalized Through Time?," Papers 89-8, New South Wales - School of Economics.
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- Alex Armstrong & Nick Draper & AndrÃ© Nibbelink & Ed Westerhout, 2007. "Fiscal prefunding in response to demographic uncertainty," CPB Discussion Paper 85, CPB Netherlands Bureau for Economic Policy Analysis.
- Evan Tanner & Kevin Carey, 2008.
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- Evan Tanner, 2013. "Fiscal Sustainability: A 21st Century Guide for the Perplexed," IMF Working Papers 13/89, International Monetary Fund.
- Fisher, Lance A. & Kingston, Geoffrey H., 2004. "Theory of tax smoothing in the small open economy," Economics Letters, Elsevier, vol. 85(1), pages 1-7, October.
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