A note on incomplete factor taxation
Optimal capital taxes may be positive in the steady state in Ramsey models with an incomplete set of factor taxes. I show this possibility crucially depends on how fiscal policy is constrained at date tÂ =Â 0. If the government is barred from manipulating the value of initial assets, the Chamley-Judd result reappears: the optimal capital tax is always zero in the steady state.
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