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On the Assumptions of the Optimal Taxation Problem: Is Distortionary Taxation a Burden or a Blessing?

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  • Pedro Teles

    (Banco de Portugal, Universidade Catolica Portuguesa and CEPR;)

Abstract

I consider a reasonable deviation from the standard assumptions in the optimal taxation literature on public consumption and show that the results on the optimal taxes are substantially altered. In particular, `distortionary' taxes may be optimal after all. This reveals that, in contrast to the common practice, the analysis of optimal taxation cannot be done independently of the analysis of the optimal public provision of goods and services.

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File URL: http://www.economicdynamics.org/meetpapers/2009/paper_926.pdf
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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 926.

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Date of creation: 2009
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Handle: RePEc:red:sed009:926

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  1. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  2. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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