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Optimal taxation and borrowing constraints

  • Nathalie Mathieu-Bolh

    ()

    (Department of Economics, University of Vermont, 94, University Place, Burlington, VT 05405 United State of America.)

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    I propose a new overlapping generations model, in which individuals face different income levels, life expectancies and borrowing constraints to study Ramsey optimal taxation. Contrary to previous contributions, I find that optimal capital income taxation generally differs from zero in the long term even when preferences are additively separable. I also find that the tax system should generally incorporate a progressive capital income tax in the long run. Furthermore, the model enables to disentangle the respective roles of finite life horizons, productivity differences and borrowing limits.

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    File URL: ftp://iies.faces.ula.ve/Pdf/Revista31/Rev31Mathieu-Bolh.pdf
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    Article provided by Instituto de Investigaciones Económicas y Sociales (IIES). Facultad de Ciencias Económicas y Sociales. Universidad de Los Andes. Mérida, Venezuela in its journal Economía.

    Volume (Year): 36 (2011)
    Issue (Month): 31 (January-june)
    Pages: 9-53

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    Handle: RePEc:ula:econom:v:36:y:2011:i:31:p:9-53
    Contact details of provider: Postal: Facultad de Ciencias Económicas y Sociales. Instituto de Investigaciones Económicas y Sociales. Campus Universitario Liria, Edificio G, Tercer Nivel. Mérida 5101, Estado Mérida, Venezuela
    Phone: +58 74 401111 ext. 1081
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    Web page: http://iies.faces.ula.ve/
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    1. Bernardi, Luigi & Fraschini, Angela, 2005. "Tax system and tax reforms in India," POLIS Working Papers 45, Institute of Public Policy and Public Choice - POLIS.
    2. Conesa, Juan Carlos & Kitao, Sagiri & Krueger, Dirk, 2006. "Taxing capital? Not a bad idea after all!," CFS Working Paper Series 2006/21, Center for Financial Studies (CFS).
    3. LOZACHMEUR, Jean-Marie, 2002. "Optimal age specific income taxation," CORE Discussion Papers 2002046, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Chamley, Christophe, 1985. "Efficient Taxation in a Stylized Model of Intertemporal General Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 451-68, June.
    5. Suzanne Duryea, 1998. "Children's Advancement Through School in Brazil: The Role of Transitory Shocks to Household Income," IDB Publications (Working Papers) 5679, Inter-American Development Bank.
    6. Philippe Aghion & Abhijit Banerjee & Thomas Piketty, 1999. "Dualism And Macroeconomic Volatility," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1359-1397, November.
    7. Carlos Garriga, 2001. "Optimal Fiscal Policy in Overlapping Generations Models," Working Papers in Economics 66, Universitat de Barcelona. Espai de Recerca en Economia.
    8. Chamley, Christophe, 2001. "Capital income taxation, wealth distribution and borrowing constraints," Journal of Public Economics, Elsevier, vol. 79(1), pages 55-69, January.
    9. James Feigenbaum, 2006. "Precautionary Saving Unfettered," Working Papers 227, University of Pittsburgh, Department of Economics, revised Jan 2006.
    10. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
    11. N. Gregory Mankiw, 1999. "The Savers-Spenders Theory of Fiscal Policy," Harvard Institute of Economic Research Working Papers 1888, Harvard - Institute of Economic Research.
    12. Bovenberg, A. Lans & van Ewijk, Casper, 1997. "Progressive taxes, equity, and human capital accumulation in an endogenous growth model with overlapping generations," Journal of Public Economics, Elsevier, vol. 64(2), pages 153-179, May.
    13. Steve Ambler, 2000. "Optimal Time Consistent Fiscal Policy with Overlapping Generations," Cahiers de recherche CREFE / CREFE Working Papers 111, CREFE, Université du Québec à Montréal.
    14. Jukka Pirttilä & Matti Tuomala, 1999. "On Optimal Non-Linear Taxation and Public Good Provision in Overlapping Generations Economy," Discussion Papers 200, Government Institute for Economic Research Finland (VATT).
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