Dynamic Income Taxation without Commitment: Comparing Alternative Tax Systems
AbstractThis paper addresses the question as to whether it is optimal to use separating or pooling nonlinear income taxation, or to use linear income taxation, when the government cannot commit to its future tax policy. We consider both two- period and inOÌˆnite-horizon settings. Under empirically plausible parameter values, separating income taxation is optimal in the two-period model, whereas linear income taxation is optimal when the time horizon is inOÌˆnite. The welfare eÂ§ects of varying the discount rate, the degree of wage inequality, and the population of high-skill workers are also explored. For realistic changes in these parameters, separating income taxation remains optimal in the two-period formulation, and linear income taxation remains optimal in the inOÌˆnite-horizon model.
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Bibliographic InfoPaper provided by University of California at Riverside, Department of Economics in its series Working Papers with number 201005.
Length: 28 pages
Date of creation: Jun 2010
Date of revision: Jun 2010
Dynamic Income Taxation; Commitment;
Other versions of this item:
- J-T Guo & A Krause, 2010. "Dynamic Income Taxation without Commitment: Comparing Alternative Tax Systems," Discussion Papers 10/15, Department of Economics, University of York.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-10 (All new papers)
- NEP-PBE-2010-07-10 (Public Economics)
- NEP-PUB-2010-07-10 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jang-Ting Guo & Alan Krause, 2008.
"Optimal Nonlinear Income Taxation with Habit Formation,"
200810, University of California at Riverside, Department of Economics, revised Aug 2008.
- Jang‐Ting Guo & Alan Krause, 2011. "Optimal Nonlinear Income Taxation with Habit Formation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(3), pages 463-480, 06.
- Jang-Ting Guo & Alan Krause, 2010. "Optimal Dynamic Nonlinear Income Taxation under Loose Commitment," Discussion Papers 10/23, Department of Economics, University of York.
- Jang-Ting Guo & Alan Krause, . "Dynamic Nonlinear Income Taxation with Quasi-Hyperbolic Discounting and No Commitment," Discussion Papers 11/16, Department of Economics, University of York.
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