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Capital Taxation in a Simple Finite-Horizon Old Model

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Author Info

  • Blackorby, C.
  • Brett, C.

Abstract

In a simple overlapping-generations model where the government has the power to levy commodity taxes and to implement inter-temporal transfers, we seek to characterise conditions under which capital taxation (or subsidization) does not form part of the optimal tax mix. It turns out that it can never be the case that captial taxes are identically zero along the Pareto frontier. Along the way, we derive and interpret the optimal tax formulae in the economy.

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Bibliographic Info

Paper provided by UBC Department of Economics in its series UBC Departmental Archives with number 00-11.

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Length: 26 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:ubc:bricol:00-11

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Keywords: OVERLAPPING GENERATIONS ; TAXES ; ECONOMIC REFORM;

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References

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  1. Browning, Martin & Burbidge, John, 1990. "Consumption and Income Taxation," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 281-92, January.
  2. Weymark, John A., 1979. "A reconciliation of recent results in optimal taxation theory," Journal of Public Economics, Elsevier, vol. 12(2), pages 171-189, October.
  3. Diewert, W. E. & Avriel, M. & Zang, I., 1981. "Nine kinds of quasiconcavity and concavity," Journal of Economic Theory, Elsevier, vol. 25(3), pages 397-420, December.
  4. Martin Feldstein, 1982. "Capital Taxation," NBER Working Papers 0877, National Bureau of Economic Research, Inc.
  5. Judd, Kenneth L, 1987. "The Welfare Cost of Factor Taxation in a Perfect-Foresight Model," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 675-709, August.
  6. Martin Feldstein, 1978. "The Welfare Cost of Capital Income Taxation," NBER Chapters, in: Research in Taxation, pages 29-51 National Bureau of Economic Research, Inc.
  7. 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.
  8. Alan J. Auerbach, 1990. "Public Sector Dynamics," NBER Working Papers 3508, National Bureau of Economic Research, Inc.
  9. Judd, Kenneth L., 1999. "Optimal taxation and spending in general competitive growth models," Journal of Public Economics, Elsevier, vol. 71(1), pages 1-26, January.
  10. B. Douglas Bernheim, 1999. "Taxation and Saving," NBER Working Papers 7061, National Bureau of Economic Research, Inc.
  11. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Ordover, J. A. & Phelps, E. S., 1979. "The concept of optimal taxation in the overlapping-generations model of capital and wealth," Journal of Public Economics, Elsevier, vol. 12(1), pages 1-26, August.
  13. Alan J. Auerbach & James R. Hines Jr., 2001. "Taxation and Economic Efficiency," NBER Working Papers 8181, National Bureau of Economic Research, Inc.
  14. 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.
  15. Guesnerie Roger, 1976. "On the direction of tax reform," CEPREMAP Working Papers (Couverture Orange) 7603, CEPREMAP.
  16. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
  17. Feldstein, Martin, 1990. "The Second Best Theory of Differential Capital Taxation," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 256-67, January.
  18. Auerbach, Alan J., 1989. "The deadweight loss from `non-neutral' capital income taxation," Journal of Public Economics, Elsevier, vol. 40(1), pages 1-36, October.
  19. Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, number 9780521497695.
  20. Diewert, W. E., 1978. "Optimal tax perturbations," Journal of Public Economics, Elsevier, vol. 10(2), pages 139-177, October.
  21. Blackorby, Charles & Diewert, W E, 1979. "Expenditure Functions, Local Duality, and Second Order Approximations," Econometrica, Econometric Society, vol. 47(3), pages 579-601, May.
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Cited by:
  1. Juergen Jung, 2008. "The Timing of Redistribution," Caepr Working Papers 2008-015, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  2. Alan Krause, 2004. "The Dynamic Process of Tax Reform," Econometric Society 2004 Australasian Meetings 119, Econometric Society.

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