Dynamic Optimal Non-linear Taxation Under Non-commitment
This paper studies dynamic non-linear taxation in a two-period model without government commitment and a continuum of agents with privately known skill parameters, which are constant overtime. The government is utilitarian but cannot commit at t=1 to the tax scheme that she will propose at t=2. We identify the perfect Bayesian equilibrium of this two period game that maximizes ex-ante payoffs of the government. First, we solve the second period taxation scheme for arbitrary posteriors of the government. Then we show that whenever this posterior has support with gaps this arises from unnatural ways of breaking indifferences. We impose a tie-breaking rule and show then that the only possible equilibria partition types into a countable number of intervals. Hence the optimal taxation scheme in the first period is characterized by two things: 1) a partition of the original type space, that is a sequence of numbers that determine type-cut-offs and 2) a set of tax-consumption pairs, one for each of these sub-intervals. In the second period, the government offers a different tax-schedule for each tax-consumption pair chosen in the first period. We proceed to characterize how the number and the size of partitions at the optimum depend on the discount factor and on the distribution of the skill parameters in the economy
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||2004|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:red:sed004:181. 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: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.