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Capital Taxation In A Simple Finite-Horizon Olg Model

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Author Info
Blackorby, Charles (Department of Economics, University of Warwick and GREQAM)
Brett, Craig (Department of Economics, Mount Allison University)

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Abstract

In a simple finite-horizon overlapping-generations model where the government has the power to levy commodity taxes and to implement uniform lump-sum transfers, and individuals as well as the government can purchase units of a storable good in order to transfer resources from the present to the future, we derive the equations that implicitly define the taxes and subsidies that are part of the second-best Pareto optima. In this context we first show that there is production efficiency. We then show that taxes on capital income/savings are required at almost all Pareto optima. Finally we show that there are no restriction on preferences or technologies that are consistent with a general exemption of capital income/savings from the tax base.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/publications/twerp709.pdf
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Publisher Info
Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 709.

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Length: 25 pages
Date of creation: 2004
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Handle: RePEc:wrk:warwec:709

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Related research
Keywords: overlapping generations ; capital taxes ; tax-reform;

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Find related papers by JEL classification:
D5 - Microeconomics - - General Equilibrium and Disequilibrium
D6 - Microeconomics - - Welfare Economics
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
H2 - Public Economics - - Taxation, Subsidies, and Revenue

References listed on IDEAS
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.:

  1. 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. [Downloadable!] (restricted)
  2. Bernheim, B. Douglas, 2002. "Taxation and saving," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 18, pages 1173-1249 Elsevier. [Downloadable!] (restricted)
    Other versions:
  3. 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)
  4. Alan J. Auerbach, 1990. "Public Sector Dynamics," NBER Working Papers 3508, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Auerbach, Alan J. & Hines, James Jr., 2002. "Taxation and economic efficiency," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 21, pages 1347-1421 Elsevier. [Downloadable!] (restricted)
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  6. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May. [Downloadable!] (restricted)
  7. Feldstein, Martin, 1990. "The Second Best Theory of Differential Capital Taxation," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 256-67, January. [Downloadable!] (restricted)
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  8. 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. [Downloadable!] (restricted)
  9. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Guesnerie, Roger, 1977. "On the direction of tax reform," Journal of Public Economics, Elsevier, vol. 7(2), pages 179-202, April. [Downloadable!] (restricted)
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  11. Browning, Martin & Burbidge, John, 1990. "Consumption and Income Taxation," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 281-92, January. [Downloadable!] (restricted)
  12. Feldstein, Martin S, 1978. "The Welfare Cost of Capital Income Taxation," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages S29-51, April. [Downloadable!] (restricted)
  13. repec:cup:cbooks:9780521629560 is not listed on IDEAS
  14. 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. [Downloadable!] (restricted)
  15. Alan J. Auerbach, 1990. "The Deadweight Loss from `Non-Neutral' Capital Income Taxation," NBER Working Papers 2510, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. 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. [Downloadable!] (restricted)
  17. Martin Feldstein, 1982. "Capital Taxation," NBER Working Papers 0877, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Diewert, W. E., 1978. "Optimal tax perturbations," Journal of Public Economics, Elsevier, vol. 10(2), pages 139-177, October. [Downloadable!] (restricted)
  19. 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. [Downloadable!] (restricted)
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  20. Blackorby, Charles & Diewert, W E, 1979. "Expenditure Functions, Local Duality, and Second Order Approximations," Econometrica, Econometric Society, vol. 47(3), pages 579-601, May. [Downloadable!] (restricted)
  21. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  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. [Downloadable!]
  2. Alan Krause, 2004. "The Dynamic Process of Tax Reform," Econometric Society 2004 Australasian Meetings 119, Econometric Society. [Downloadable!]
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