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The Friedman rule in an overlapping-generations model with nonlinear taxation and income misreporting

Author

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  • Gahvari, Firouz

    () (Department of Economics)

  • Micheletto, Luca

    () (Uppsala Center for Fiscal Studies)

Abstract

This paper models an overlapping-generations economy that includes money and is populated with individuals of different skills. They face a nonlinear income tax schedule and can engage in tax evasion. Money serves two purposes: the traditional one, modeled through a money-in-the-utility-function, and to facilitate tax evasion. It shows that income tax evasion leads to the violation of the Friedman rule that will otherwise hold.

Suggested Citation

  • Gahvari, Firouz & Micheletto, Luca, 2012. "The Friedman rule in an overlapping-generations model with nonlinear taxation and income misreporting," Working Paper Series, Center for Fiscal Studies 2012:9, Uppsala University, Department of Economics, revised 05 Jun 2014.
  • Handle: RePEc:hhs:uufswp:2012_009
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    Cited by:

    1. Gomis-Porqueras, Pedro & Waller, Christopher J., 2017. "Optimal Taxes Under Private Information: The Role of the Inflation Tax," Working Papers 2017-14, Federal Reserve Bank of St. Louis.
    2. Gahvari, Firouz & Micheletto, Luca, 2016. "Capital income taxation and the Atkinson–Stiglitz theorem," Economics Letters, Elsevier, vol. 147(C), pages 86-89.
    3. Gahvari, Firouz & Micheletto, Luca, 2014. "The Friedman rule in an overlapping-generations model with nonlinear taxation and income misreporting," Journal of Public Economics, Elsevier, vol. 119(C), pages 10-23.

    More about this item

    Keywords

    Monetary policy; fiscal policy; redistribution; the Friedman rule; tax evasion; overlapping-generations; second best;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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