Asset Value Constraints in Models of Incomplete Factor Taxation
AbstractThis paper clarifies the role of initial asset value constraints in Ramsey models of incomplete factor taxation. We show that the optimal long-run capital tax is zero in the long run if and only if there is no binding constraint on the initial capital tax rate. This finding contrasts with Armenter (2008) who argues that zero long-run capital taxes reappear in models of incomplete factor taxation as long as the government is barred from manipulating initial asset wealth. The reason for this difference is that the two constraints cannot both be binding at the same time. Hence, in Armenter’s (2008) analysis, the initial asset value constraint is necessarily more restrictive than the constraint on the initial capital tax rate.
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Bibliographic InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 0949.
Date of creation: 2009
Date of revision:
Ramsey equilibrium; incomplete factor taxation;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
This paper has been announced in the following NEP Reports:
- NEP-ACC-2009-11-14 (Accounting & Auditing)
- NEP-ALL-2009-11-14 (All new papers)
- NEP-PUB-2009-11-14 (Public Finance)
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