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The Friedman rule in an overlapping-generations model with nonlinear taxation and income misreporting

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  • Gahvari, Firouz

    ()
    (Department of Economics)

  • Micheletto, Luca

    ()
    (Uppsala Center for Fiscal Studies)

Abstract

This paper models an overlapping-generations economy that includes money and is populated with individuals of different skills. They face a nonlinear income tax schedule and can engage in tax evasion. Money serves two purposes: the traditional one, modeled through a money-in-the-utility-function, and to facilitate tax evasion. It shows that income tax evasion leads to the violation of the Friedman rule that will otherwise hold.

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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series, Center for Fiscal Studies with number 2012:9.

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Length: 36 pages
Date of creation: 27 Jun 2012
Date of revision: 05 Jun 2014
Publication status: Published as Gahvari, Firouz and Luca Micheletto, 'The Friedman rule in an overlapping-generations model with nonlinear taxation and income misreporting' in Journal of Public Economics , 2014, pages 10-23.
Handle: RePEc:hhs:uufswp:2012_009

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Related research

Keywords: Monetary policy; fiscal policy; redistribution; the Friedman rule; tax evasion; overlapping-generations; second best;

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References

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  3. Correia, Isabel & Teles, Pedro, 1996. "Is the Friedman rule optimal when money is an intermediate good?," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 223-244, October.
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  15. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
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  18. Carlos E. da Costa & Iván Werning, 2008. "On the Optimality of the Friedman Rule with Heterogeneous Agents and Nonlinear Income Taxation," Journal of Political Economy, University of Chicago Press, vol. 116(1), pages 82-112, 02.
  19. Gahvari, Firouz, 1988. "Lump-sum taxation and the superneutrality and optimum quantity of money in life cycle growth models," Journal of Public Economics, Elsevier, vol. 36(3), pages 339-367, August.
  20. Arbex, Marcelo & Turdaliev, Nurlan, 2011. "Optimal monetary and audit policy with imperfect taxation," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 327-340, June.
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