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Political Economy of Ramsey Taxation

  • Daron Acemoglu
  • Michael Golosov
  • Aleh Tsyvinski

We study the dynamic taxation of capital and labor in the Ramsey model under the assumption that taxes and public good provision are decided by a self-interested politician who cannot commit to policies. We show that, as long as the politician is as patient as the citizens, the Chamley-Judd result of zero long-run taxes holds. In contrast, if the politician is less patient than the citizens, the best (subgame perfect) equilibrium from the viewpoint of the citizens involves long-run capital taxation.

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Date of creation: 09 Jun 2008
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Handle: RePEc:cla:levarc:122247000000002192
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