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Political Economy of Ramsey Taxation

  • Daron Acemoglu
  • Mikhail 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 discount factor of the politician is equal to or greater than that of 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15302.

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Date of creation: Aug 2009
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Publication status: published as Acemoglu, Daron & Golosov, Mikhail & Tsyvinski, Aleh, 2011. "Political economy of Ramsey taxation," Journal of Public Economics, Elsevier, vol. 95(7), pages 467-475.
Handle: RePEc:nbr:nberwo:15302
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