This paper reviews the recent optimal dynamic tax literature, and links the results from dynastic one-person economies, dynastic heterogeneous individual economies and overlapping generations economies. The paper shows that the second best labour tax is positive, and further analyses the dynamic path of capital and labour taxes, as well as he economy's adjustment under the optimal programme. Furthermore, we prove that in a heterogeneous individual economy, every individual's most prefereed capital tax in steady state is zero. The optimal labour tax in a heterogeneous individual framework is similar to the optimal labour tax in a one -person economy.
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Paper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number
99-21.
Find related papers by JEL classification: H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy D90 - Microeconomics - - Intertemporal Choice and Growth - - - General
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