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Efficient Stationary Taxation and Intertemporal General Equilibrium


  • Christophe Chamley
  • Douglas Downing


We present a method to analyze the welfare cost of price distortions created by taxes on the incomes of capital and labor and on consumption in an intertemporal model of general equilibrium. This efficiency cost depends in an important way on the production technology. It is not very sensitive to the ratio between the tax rates on capital and labor respectively, when the elasticity of substitution between these factors is small. Our method allows us to determine under the assumptions of the model, the optimal combination of taxes on capital and labor income respectively. The consumption tax is more efficient than the labor income tax.

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  • Christophe Chamley & Douglas Downing, 1981. "Efficient Stationary Taxation and Intertemporal General Equilibrium," Cowles Foundation Discussion Papers 591, Cowles Foundation for Research in Economics, Yale University.
  • Handle: RePEc:cwl:cwldpp:591
    Note: CFP 626.

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    1. Auerbach, Alan J & Kotlikoff, Laurence J & Skinner, Jonathan, 1983. "The Efficiency Gains from Dynamic Tax Reform," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(1), pages 81-100, February.
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    6. Pestieau, P. M., 1974. "Optimal taxation and discount rate for public investment in a growth setting," Journal of Public Economics, Elsevier, vol. 3(3), pages 217-235, August.
    7. Auernheimer, Leonardo, 1974. "The Honest Government's Guide to the Revenue from the Creation of Money," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 598-606, May/June.
    8. A. B. Atkinson & N. H. Stern, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 119-128.
    9. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-278, June.
    10. Munk, Knud Jorgen, 1978. " Optimal Taxation and Pure Profit," Scandinavian Journal of Economics, Wiley Blackwell, vol. 80(1), pages 1-19.
    11. Brock, William A & Turnovsky, Stephen J, 1981. "The Analysis of Macroeconomic Policies in Perfect Foresight Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(1), pages 179-209, February.
    12. J. E. Meade, 1958. "Is The National Debt A Burden?," Oxford Economic Papers, Oxford University Press, vol. 10(2), pages 163-183.
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