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Optimal asymmetric taxation in a two-sector model with population ageing

Listed author(s):
  • Igor Fedotenkov

    ()

    (Bank of Lithuania)

This paper presents a simple condition for optimal asymmetric labour (capital) taxation/subsidization in a two-sector model with logarithmic utilities and Cobb-Douglas production functions, linked to demographic factors: fertility rate and longevity. The paper shows that depending on parameter values, it may be optimal to tax or subsidize labour in the sectors. If it is optimal to tax the investment-goods sector, a Pareto-improving tax reform is possible. Larger output elasticities of capital in the sectors reduce the possibilities of a Pareto-improving reform, while population ageing in terms of higher longevity enhances the possibilities of welfare improvement for all generations. Fertility rates do not affect optimal taxation.

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File URL: http://www.lb.lt/en/publications/no-15-optimal-asymmetric-taxation-in-a-two-sector-model-with-population-ageing
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Paper provided by Bank of Lithuania in its series Bank of Lithuania Working Paper Series with number 15.

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Length: 26 pages
Date of creation: 21 Oct 2014
Handle: RePEc:lie:wpaper:15
Contact details of provider: Postal:
Bank of Lithuania Gedimino pr. 6, LT-01103 Vilnius, Lithuania

Phone: 22 40 08
Fax: 22 15 01
Web page: http://www.lbank.lt/
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  23. repec:ebl:ecbull:v:30:y:2010:i:1:p:534-542 is not listed on IDEAS
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