Cyclical and Noncyclical Redistributive Taxation
Consider the optimal time path of a tax on capital income, the proceeds of which are transferred to labor in a lump sum. It is known from earlier open-loop formulations that, if the optimal rate of tax converges to a point, it converges to zero, implying that, in the long run, a tax on capital income can do nothing for social welfare. It is now shown that the optimal rate of tax need not converge to zero and, in the case of feedback formulations, that it may converge to a positive or negative number or to a limit cycle. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Volume (Year): 34 (1993)
Issue (Month): 2 (May)
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