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Optimal taxation and borrowing constraints

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  • Nathalie Mathieu-Bolh

    ()
    (Department of Economics, University of Vermont, 94, University Place, Burlington, VT 05405 United State of America.)

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    Abstract

    I propose a new overlapping generations model, in which individuals face different income levels, life expectancies and borrowing constraints to study Ramsey optimal taxation. Contrary to previous contributions, I find that optimal capital income taxation generally differs from zero in the long term even when preferences are additively separable. I also find that the tax system should generally incorporate a progressive capital income tax in the long run. Furthermore, the model enables to disentangle the respective roles of finite life horizons, productivity differences and borrowing limits.

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    File URL: ftp://iies.faces.ula.ve/Pdf/Revista31/Rev31Mathieu-Bolh.pdf
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    Bibliographic Info

    Article provided by Instituto de Investigaciones Económicas y Sociales (IIES). Facultad de Ciencias Económicas y Sociales. Universidad de Los Andes. Mérida, Venezuela in its journal Economía.

    Volume (Year): 36 (2011)
    Issue (Month): 31 (January-june)
    Pages: 9-53

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    Handle: RePEc:ula:econom:v:36:y:2011:i:31:p:9-53

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    Postal: Facultad de Ciencias Económicas y Sociales. Instituto de Investigaciones Económicas y Sociales. Campus Universitario Liria, Edificio G, Tercer Nivel. Mérida 5101, Estado Mérida, Venezuela
    Phone: +58 74 401111 ext. 1081
    Fax: +58 74 401120
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    Web page: http://iies.faces.ula.ve/
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    Related research

    Keywords: Optimal taxation; borrowing constraints; overlapping generations.;

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    1. Steve Ambler, 2000. "Optimal Time Consistent Fiscal Policy with Overlapping Generations," Cahiers de recherche CREFE / CREFE Working Papers 111, CREFE, Université du Québec à Montréal.
    2. Jean-Marie Lozachmeur, 2006. "Optimal Age-Specific Income Taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(4), pages 697-711, October.
    3. Jonathan Crook & Stefan Hochguertel, 2007. "US and European Household Debt and Credit Constraints," Tinbergen Institute Discussion Papers 07-087/3, Tinbergen Institute.
    4. Jukka Pirttilä & Matti Tuomala, 1999. "On Optimal Non-Linear Taxation and Public Good Provision in Overlapping Generations Economy," Discussion Papers 200, Government Institute for Economic Research Finland (VATT).
    5. N. Gregory Mankiw, 1999. "The Savers-Spenders Theory of Fiscal Policy," Harvard Institute of Economic Research Working Papers 1888, Harvard - Institute of Economic Research.
    6. James Feigenbaum, 2006. "Precautionary Saving Unfettered," Computing in Economics and Finance 2006 29, Society for Computational Economics.
    7. Bernardi, Luigi & Fraschini, Angela, 2005. "Tax system and tax reforms in India," POLIS Working Papers 45, Institute of Public Policy and Public Choice - POLIS.
    8. Carlos Garriga, 2001. "Optimal Fiscal Policy in Overlapping Generations Models," Working Papers in Economics 66, Universitat de Barcelona. Espai de Recerca en Economia.
    9. Juan C. Conesa & Dirk Krueger, 2004. "Taxing Capital: Not a Bad Idea After All," 2004 Meeting Papers 403, Society for Economic Dynamics.
    10. Suzanne Duryea, 1998. "Children's Advancement Through School in Brazil: The Role of Transitory Shocks to Household Income," Research Department Publications 4124, Inter-American Development Bank, Research Department.
    11. Bovenberg, A.L. & Ewijk, C. van, 1997. "Progressive taxes, equity and human capital accumulation in an endogenous growth model with overlapping generations," Open Access publications from Tilburg University urn:nbn:nl:ui:12-74442, Tilburg University.
    12. Piketty, Thomas & Banerjee, Abhijit & Aghion, Philippe, 1997. "Dualism and macroeconomic volatility," CEPREMAP Working Papers (Couverture Orange) 9720, CEPREMAP.
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