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Political economy of Ramsey taxation

  • Acemoglu, Daron
  • Golosov, Mikhail
  • Tsyvinski, Aleh

We study the dynamic taxation of capital and labor in the Ramsey model under the assumption that taxes and public good provision are decided by a self-interested politician who cannot commit to policies. We show that, as long as the politician is as patient as the citizens, the Chamley-Judd result of zero long-run taxes holds. In contrast, if the politician is less patient than the citizens, the best (subgame perfect) equilibrium from the viewpoint of the citizens involves long-run capital taxation.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 95 (2011)
Issue (Month): 7-8 (August)
Pages: 467-475

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Handle: RePEc:eee:pubeco:v:95:y:2011:i:7-8:p:467-475
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