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Optimal Nonlinear Taxation in an Overlapping-Generations Setting with Money as an Asset

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  • Akira Yakita

Abstract

We investigate the optimal nonlinear wage and interest-income taxes with money as an asset, assuming that there are two types of labor, which are not perfect substitutes in production, and that each type is difficult for the policymaker to observe. It is shown that the optimal interest-income taxation differentiates asset prices facing two types of individuals, and hence that the zero-nominal-interest-rate rule holds for the high-ability type, although not for the low-ability type unless the mimickers' valuation of future consumption is the same as that of the true low-ability individual without separability of the utility function.

Suggested Citation

  • Akira Yakita, 2008. "Optimal Nonlinear Taxation in an Overlapping-Generations Setting with Money as an Asset," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(1), pages 19-32, March.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200803)64:1_19:ontiao_2.0.tx_2-p
    DOI: 10.1628/001522108X312050
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    References listed on IDEAS

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    Keywords

    Nonlinear income taxation; inflation tax; overlapping-generations model;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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