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Yet Another Reason to Tax Goods

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Author Info
Carlos E. da Costa () (Graduate School of Economics Getulio Vargas Foundation)

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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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Publisher 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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Related research
Keywords: Optimal Taxation; Non-observable savings; Multi-period agency;

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Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

References listed on IDEAS
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  1. Chiappori, Pierre-Andre & Macho, Ines & Rey, Patrick & Salanie, Bernard, 1994. "Repeated moral hazard: The role of memory, commitment, and the access to credit markets," European Economic Review, Elsevier, vol. 38(8), pages 1527-1553, October. [Downloadable!] (restricted)
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  2. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75. [Downloadable!] (restricted)
  3. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 2001. "Direct versus Indirect Taxation: The Design of the Tax Structure Revisted," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 781-99, August.
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  4. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Blackwell Publishing, vol. 38(114), pages 175-208, April. [Downloadable!] (restricted)
  5. J. A. Mirrlees, 1976. "Optimal Tax Theory: A Synthesis," Working papers 176, Massachusetts Institute of Technology (MIT), Department of Economics.
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  6. Dewatripont, Mathias, 1988. "Commitment through Renegotiation-Proof Contracts with Third Parties," Review of Economic Studies, Blackwell Publishing, vol. 55(3), pages 377-89, July. [Downloadable!] (restricted)
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  8. Cooter, Robert D, 1978. "Optimal Tax Schedules and Rates: Mirrlees and Ramsey," American Economic Review, American Economic Association, vol. 68(5), pages 756-68, December. [Downloadable!] (restricted)
  9. repec:cup:cbooks:9780521629560 is not listed on IDEAS
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  11. Mikhail Golosov & Narayana Kocherlakota & Aleh Tsyvinski, 2003. "Optimal Indirect and Capital Taxation," Review of Economic Studies, Blackwell Publishing, vol. 70(3), pages 569-587, 07. [Downloadable!] (restricted)
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  12. Cremer, Helmuth & Gahvari, Firouz, 1995. "Uncertainty, Optimal Taxation and the Direct versus Indirect Tax Controversy," Economic Journal, Royal Economic Society, vol. 105(432), pages 1165-79, September. [Downloadable!] (restricted)
  13. Brunner, Johann K., 1993. "A note on the optimum income tax," Journal of Public Economics, Elsevier, vol. 50(3), pages 445-451, March. [Downloadable!] (restricted)
  14. Narayana R. Kocherlakota, 2004. "Wedges and Taxes," American Economic Review, American Economic Association, vol. 94(2), pages 109-113, May. [Downloadable!]
  15. Ebert, Udo, 1992. "A reexamination of the optimal nonlinear income tax," Journal of Public Economics, Elsevier, vol. 49(1), pages 47-73, October. [Downloadable!] (restricted)
  16. Joseph E. Stiglitz, 1982. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Cremer, Helmuth & Gahvari, Firouz, 1999. " Uncertainty, Commitment, and Optimal Taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 1(1), pages 51-70. [Downloadable!] (restricted)
  18. Tsyvinski, A. & Golosov, M., 2004. "Optimal Taxation with Endogenous Insurance Markets," 2004 Meeting Papers 124, Society for Economic Dynamics.
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  19. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 2003. "Capital income taxation when inherited wealth is not observable," Journal of Public Economics, Elsevier, vol. 87(11), pages 2475-2490, October. [Downloadable!] (restricted)
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  1. Mikhail Golosov & Aleh Tsyvinski, 2006. "Optimal Taxation with Endogenous Insurance Markets," Levine's Bibliography 784828000000000445, UCLA Department of Economics. [Downloadable!]
    Other versions:
  2. Costa, Carlos Eugênio da & Maestri, Lucas Jóver, 2004. "The risk-properties of human capital and the design of government policies," Economics Working Papers (Ensaios Economicos da EPGE) 554, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
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