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Political economy of Ramsey taxation

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

Abstract

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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  • Acemoglu, Daron & Golosov, Mikhail & Tsyvinski, Aleh, 2011. "Political economy of Ramsey taxation," Journal of Public Economics, Elsevier, vol. 95(7), pages 467-475.
    • Handle: RePEc:eee:pubeco:v:95:y:2011:i:7:p:467-475
    DOI: 10.1016/j.jpubeco.2010.10.014
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    Cited by:

    1. Aronsson, Thomas & Johansson-Stenman, Olof, 2013. "Publicly Provided Private Goods and Optimal Taxation when Consumers Have Positional Preferences," Working Papers in Economics 558, University of Gothenburg, Department of Economics.
    2. Gaël Giraud & Myrna Wooders, 2012. "On the Simultaneous Emergence of Money and the State," Documents de travail du Centre d'Economie de la Sorbonne 12094, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    3. Eckhard Janeba, 2012. "Germany´s New Debt Brake: A Blueprint for Europe?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 68(4), pages 383-405, December.
    4. Reis, Catarina, 2012. "Social discounting and incentive compatible fiscal policy," Journal of Economic Theory, Elsevier, vol. 147(6), pages 2469-2482.
    5. Yena Park, 2012. "Optimal Taxation in a Limited Commitment Economy," PIER Working Paper Archive 12-033, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    6. Bergemann, Dirk & Pavan, Alessandro, 2015. "Introduction to Symposium on Dynamic Contracts and Mechanism Design," Journal of Economic Theory, Elsevier, vol. 159(PB), pages 679-701.
    7. Aguiar, Mark & Amador, Manuel, 2016. "Fiscal policy in debt constrained economies," Journal of Economic Theory, Elsevier, vol. 161(C), pages 37-75.
    8. repec:hal:journl:halshs-00786075 is not listed on IDEAS
    9. Miao, Jianjun & Zhang, Yuzhe, 2015. "A duality approach to continuous-time contracting problems with limited commitment," Journal of Economic Theory, Elsevier, vol. 159(PB), pages 929-988.
    10. Acemoglu, Daron & Golosov, Mikhail & Tsyvinski, Aleh, 2011. "Power fluctuations and political economy," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1009-1041, May.
    11. Micael Castanheira & Gaëtan Nicodème & Paola Profeta, 2012. "On the political economics of tax reforms: survey and empirical assessment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(4), pages 598-624, August.
    12. repec:eee:macchp:v2-2599 is not listed on IDEAS
    13. Alberto Alesina & Andrea Passalacqua, 2015. "The Political Economy of Government Debt," NBER Working Papers 21821, National Bureau of Economic Research, Inc.
    14. Manuel Amador & Mark Aguiar, 2011. "Fiscal Policy in Debt Constrained Economies," 2011 Meeting Papers 527, Society for Economic Dynamics.
    15. Dirk Bergemann & Alessandro Pavan, 2015. "Introduction to JET Symposium Issue on "Dynamic Contracts and Mechanism Design"," Cowles Foundation Discussion Papers 2016, Cowles Foundation for Research in Economics, Yale University.
    16. Dai, Darong, 2013. "Cooperative economic growth," Economic Modelling, Elsevier, vol. 33(C), pages 407-415.
    17. Grechyna, Daryna, 2017. "Public Policy Against Political Frictions," MPRA Paper 76396, University Library of Munich, Germany.
    18. Grechyna, Daryna, 2015. "Quantifying the Impact of Political Frictions on Public Policy," MPRA Paper 65266, University Library of Munich, Germany.
    19. Grechyna, Daryna, 2016. "Political frictions and public policy outcomes," Journal of Comparative Economics, Elsevier, vol. 44(3), pages 484-495.
    20. Aronsson, Thomas & Johansson-Stenman, Olof, 2014. "Positional preferences in time and space: Optimal income taxation with dynamic social comparisons," Journal of Economic Behavior & Organization, Elsevier, vol. 101(C), pages 1-23.
    21. Dai, Darong, 2012. "Comparative Studies on Cooperative Stochastic Differential Game and Dynamic Sequential Game of Economic Maturity," MPRA Paper 44339, University Library of Munich, Germany.
    22. Di Bartolomeo Giovanni & Tirelli Patrizio, 2016. "Public finance and the optimal inflation rate," wp.comunite 00128, Department of Communication, University of Teramo.

    More about this item

    Keywords

    Capital taxation; Fiscal policy; Political economy;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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