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Should Marginal Tax Rates be Equalized Through Time?

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  • Geoffrey Kingston

Abstract

I derive necessary and sufficient conditions for the intertemporal equalization of optimal tax rates. The conditions in the case of wage taxes include constant-elasticity labor supply and constant relative risk aversion. Wage taxes should be low in times of relatively elastic labor supply, or low risk aversion. The conditions in the case of capital taxes include perfect-foresight expectations and constant relative risk aversion. If foresight is imperfect, intertemporal equality will be impeded by a covariance term; if relative risk aversion is time-varying, next period's capital tax should have the same sign as this period's change in relative risk aversion.

Suggested Citation

  • Geoffrey Kingston, 1991. "Should Marginal Tax Rates be Equalized Through Time?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(3), pages 911-924.
    • Handle: RePEc:oup:qjecon:v:106:y:1991:i:3:p:911-924.
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    Cited by:

    1. Mr. Evan C Tanner & Mr. Kevin J Carey, 2005. "The Perils of Tax Smoothing: Sustainable Fiscal Policy with Random Shocks to Permanent Output," IMF Working Papers 2005/207, International Monetary Fund.
    2. Fisher, Lance A. & Kingston, Geoffrey H., 2004. "Theory of tax smoothing in the small open economy," Economics Letters, Elsevier, vol. 85(1), pages 1-7, October.
    3. Alex Armstrong & Nick Draper & André Nibbelink & Ed Westerhout, 2007. "Fiscal prefunding in response to demographic uncertainty," CPB Discussion Paper 85.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Nick Draper & Alex Armstrong, 2007. "GAMMA; a simulation model for ageing, pensions and public finances," CPB Document 147, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Alex Armstrong & Nick Draper & André Nibbelink & Ed Westerhout, 2007. "Fiscal prefunding in response to demographic uncertainty," CPB Discussion Paper 85, CPB Netherlands Bureau for Economic Policy Analysis.
    6. A. Fatas & Mr. Atish R. Ghosh & Ugo Panizza & Mr. Andrea F Presbitero, 2019. "The Motives to Borrow," IMF Working Papers 2019/101, International Monetary Fund.
    7. Samuel Bonzu, 2022. "Fiscal Policy and Optimal Taxation in Sierra Leone: Testing for Tax Smoothing Hypothesis," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 14(2), pages 1-61, February.
    8. Mr. Evan C Tanner, 2013. "Fiscal Sustainability: A 21st Century Guide for the Perplexed," IMF Working Papers 2013/089, International Monetary Fund.

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