The Dynamic Process of Tax Reform
AbstractThe tax reform literature, pioneered by Guesnerie , uses static models but views tax reform as a dynamic process, i.e., as a policy-maker implementing incremental reforms over time. This paper studies tax reform in a dynamic version of the Diamond-Mirrlees-Guesnerie model and focuses on a specific aspect of the dynamic process, namely, the implications for tax reform of agents leaving bequests. The main idea is that a tax reform in one period will affect bequests and therefore endowments, equilibrium, and welfare in subsequent periods. Thus, the process of tax reform cannot be analyzed as a sequence of static economies; instead, the economies are linked by bequests. The paper undertakes a tax reform analysis a la Guesnerie, but with an added focus on welfare improving reforms for each generation. Second-best Pareto optima are then characterized, and these conditions are compared to the static optimal tax formulae derived in the literature. In particular, the key Diamond-Mirrlees result that production efficiency is desirable at second-best optima no longer holds in the presence of (effective) restrictions on the taxation of private savings. Restrictions on government savings (including balanced budget restrictions), however, do not disturb the desirability of production efficiency. Finally, the effects of certain political constraints on the tax reform process are also consider
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society 2004 Australasian Meetings with number 119.
Date of creation: 11 Aug 2004
Date of revision:
Contact details of provider:
Phone: 1 212 998 3820
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
Dynamic tax reform; second-best Pareto optima; capital taxation;
Find related papers by JEL classification:
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
- D6 - Microeconomics - - Welfare Economics
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-10-30 (All new papers)
- NEP-MIC-2004-10-30 (Microeconomics)
- NEP-PBE-2004-10-30 (Public Economics)
- NEP-PUB-2004-11-22 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Weymark, John A., 1979. "A reconciliation of recent results in optimal taxation theory," Journal of Public Economics, Elsevier, vol. 12(2), pages 171-189, October.
- Hu, Sheng Cheng, 1979. "Social Security, the Supply of Labor, and Capital Accumulation," American Economic Review, American Economic Association, vol. 69(3), pages 274-83, June.
- Michael Keen & David Wildasin, 2004. "Pareto-Efficient International Taxation," American Economic Review, American Economic Association, vol. 94(1), pages 259-275, March.
- Diewert, W. E., 1978. "Optimal tax perturbations," Journal of Public Economics, Elsevier, vol. 10(2), pages 139-177, October.
- Fogelman Francoise & Guesnerie Roger & Quinzii Martine, 1977.
"Dynamic processes for tax reform theory,"
CEPREMAP Working Papers (Couverture Orange)
- King, Mervyn A., 1983. "Welfare analysis of tax reforms using household data," Journal of Public Economics, Elsevier, vol. 21(2), pages 183-214, July.
- Guesnerie, Roger, 1977.
"On the direction of tax reform,"
Journal of Public Economics,
Elsevier, vol. 7(2), pages 179-202, April.
- Dixit, A.K., 1977.
"Price Changes and Optimum Taxation in a Many-Consumer Economy,"
The Warwick Economics Research Paper Series (TWERPS)
117, University of Warwick, Department of Economics.
- Avinash Dixit, 1979. "Price changes and optimum taxation in a many-consumer economy," Journal of Public Economics, Elsevier, vol. 11(2), pages 143-157, March.
- Blackorby, Charles & Brett, Craig, 2000. "Fiscal Federalism Revisited," Journal of Economic Theory, Elsevier, vol. 92(2), pages 300-317, June.
- Sushama Murty & R. Robert Russell, 2005. "Externality Policy Reform: A General Equilibrium Analysis," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(1), pages 117-150, 02.
- Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
- Blackorby, Charles & Brett, Craig, 2004. "Capital Taxation In A Simple Finite-Horizon Olg Model," The Warwick Economics Research Paper Series (TWERPS) 709, University of Warwick, Department of Economics.
- Ahmad, Ehtisham & Stern, Nicholas, 1984. "The theory of reform and indian indirect taxes," Journal of Public Economics, Elsevier, vol. 25(3), pages 259-298, December.
- Brett, Craig, 1998. "Tax reform and collective family decision-making," Journal of Public Economics, Elsevier, vol. 70(3), pages 425-440, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.