Dynamic Optimal Income Taxation with Government Commitment
The optimal income taxation problem has been extensively studied in one-period models. This paper analyzes optimal income taxation when consumers work for many periods. We also analyze what information, if any, that the government learns about abilities in one period can be used in later periods to attain more redistribution than in a one-period world. When the government must commit itself to future tax schedules, intertemporal nonstationarity of tax schedules could relax the self-selection constraints and lead to Pareto improvements. The effect of nonstationarity is analogous to that of randomization in one-period models. The use of information is limited since only a single lifetime self-selection constraint for each type of consumer exists. These results hold when individuals and the government have the same discount rates. The planner can make additional use of the information when individual and social rates of time discounting differ. In this case, the limiting tax schedule is a nondistorting one if the government has a lower discount rate than individuals.
|Date of creation:||Feb 1990|
|Publication status:||published as Journal of Public Economics, Vol. 44, pp. 15-35, (1991).|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- J. Riley & E. Maskin, 1981.
"Optimal Auctions with Risk Averse Buyers,"
311, Massachusetts Institute of Technology (MIT), Department of Economics.
- Brito, D.L. & Hamilton, J.H. & Slutsky, S.M. & Stiglitz, J.E., 1989.
"Randomization In Optimal Income Tax Schedules,"
89-6, Florida - College of Business Administration.
- Jean-Jacques Laffont & Jean Tirole, 1985.
"The Dynamics of Incentive Contracts,"
397, Massachusetts Institute of Technology (MIT), Department of Economics.
- Stiglitz, Joseph E., 1982.
"Self-selection and Pareto efficient taxation,"
Journal of Public Economics,
Elsevier, vol. 17(2), pages 213-240, March.
- Richard Arnott & Joseph E Stiglitz, 2010.
"Randomization with Asymmetric Information,"
Levine's Working Paper Archive
2054, David K. Levine.
- John C. Fellingham & Young K. Kwon & D. Paul Newman, 1984. "Ex ante Randomization in Agency Models," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 290-301, Summer.
- Guesnerie Roger & Seade Jesus, 1981.
"Nonlinear pricing in a finite economy,"
CEPREMAP Working Papers (Couverture Orange)
- Efraim Sadka, 1976. "On Income Distribution, Incentive Effects and Optimal Income Taxation," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 261-267.
- J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:3265. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.