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Yet Another Reason to Tax Goods

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  • Carlos E. da Costa

    ()
    (Graduate School of Economics Getulio Vargas Foundation)

Abstract

An important finding of the new dynamic public finance literature is the validity of Atkinson and Stiglitz' uniform commodity tax prescription in a dynamic Mirrleesian setting. However, this need not apply to the taxation of goods across time, i.e., the taxation of savings. We model an overlapping generations economy where, following the new dynamic public finance literature, we assume that information regarding agents' productivities is private and changes through time, but depart from the rest of the literature in assuming that the government does not have full control of agents' savings. Optimal commodity taxes are shown to depend on off-equilibrium savings, thus overturning Atkinson and Stiglitz' result. With regards to the taxation of savings, the inverse Euler equation found in the literature becomes here a positive marginal tax rate prescription

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 188.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:188

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Keywords: Optimal Taxation; Non-observable savings; Multi-period agency;

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References

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  1. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
  2. Saez, Emmanuel, 2002. "The desirability of commodity taxation under non-linear income taxation and heterogeneous tastes," Journal of Public Economics, Elsevier, vol. 83(2), pages 217-230, February.
  3. Tsyvinski, A. & Golosov, M., 2004. "Optimal Taxation with Endogenous Insurance Markets," 2004 Meeting Papers 124, Society for Economic Dynamics.
  4. CREMER, Helmuth & PESTIEAU, Pierre & ROCHET, Jean-Charles, 2001. "Capital income taxation when inherited wealth is not observable," CORE Discussion Papers 2001020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  20. CREMER, Helmuth & PESTIEAU , Pierre & ROCHET, Jean-Charles, . "Direct versus indirect taxation: the design of the tax structure revisited," CORE Discussion Papers RP -1528, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Citations

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Cited by:
  1. da Costa, Carlos E. & Maestri, Lucas J., 2007. "The risk properties of human capital and the design of government policies," European Economic Review, Elsevier, vol. 51(3), pages 695-713, April.
  2. Mikhail Golosov & Aleh Tsyvinski, 2006. "Optimal Taxation with Endogenous Insurance Markets," Levine's Bibliography 784828000000000445, UCLA Department of Economics.

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