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

Listed author(s):
  • Akira Yakita

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.

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Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 64 (2008)
Issue (Month): 1 (March)
Pages: 19-32

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200803)64:1_19:ontiao_2.0.tx_2-p
DOI: 10.1628/001522108X312050
Contact details of provider: Web page: https://www.mohr.de/fa

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  1. Chari, V. V. & Christiano, Lawrence J. & Kehoe, Patrick J., 1996. "Optimality of the Friedman rule in economies with distorting taxes," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 203-223, April.
  2. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 2003. "Capital income taxation when inherited wealth is not observable," Journal of Public Economics, Elsevier, vol. 87(11), pages 2475-2490, October.
  3. Judd, Kenneth L, 1987. "The Welfare Cost of Factor Taxation in a Perfect-Foresight Model," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 675-709, August.
  4. Abel, Andrew B., 1987. "Optimal monetary growth," Journal of Monetary Economics, Elsevier, vol. 19(3), pages 437-450, May.
  5. Crettez, Bertrand & Michel, Philippe & Wigniolle, Bertrand, 1999. "Cash-in-Advance Constraints in the Diamond Overlapping Generations Model: Neutrality and Optimality of Monetary Policies," Oxford Economic Papers, Oxford University Press, vol. 51(3), pages 431-452, July.
  6. Atkinson, A B & Sandmo, A, 1980. "Welfare Implications of the Taxation of Savings," Economic Journal, Royal Economic Society, vol. 90(359), pages 529-549, September.
  7. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
  8. Batina, Raymond G. & Ihori, Toshihiro, 2000. "Consumption Tax Policy and the Taxation of Capital Income," OUP Catalogue, Oxford University Press, number 9780198297901.
  9. Mervyn A. King, 1980. "Savings and Taxation," NBER Working Papers 0428, National Bureau of Economic Research, Inc.
  10. Boadway, Robin & Marchand, Maurice & Pestieau, Pierre, 2000. " Redistribution with Unobservable Bequests: A Case for Taxing Capital Income," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(2), pages 253-267, June.
  11. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  12. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-622, May.
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  14. Ihori, Toshihiro, 1985. "On the Welfare Cost of Permanent Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 220-231, May.
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