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Yet Another Reason to Tax Goods

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  • Carlos E. da Costa

    () (Graduate School of Economics Getulio Vargas Foundation)

Abstract

An important finding of the new dynamic public finance literature is the validity of Atkinson and Stiglitz' uniform commodity tax prescription in a dynamic Mirrleesian setting. However, this need not apply to the taxation of goods across time, i.e., the taxation of savings. We model an overlapping generations economy where, following the new dynamic public finance literature, we assume that information regarding agents' productivities is private and changes through time, but depart from the rest of the literature in assuming that the government does not have full control of agents' savings. Optimal commodity taxes are shown to depend on off-equilibrium savings, thus overturning Atkinson and Stiglitz' result. With regards to the taxation of savings, the inverse Euler equation found in the literature becomes here a positive marginal tax rate prescription

Suggested Citation

  • Carlos E. da Costa, 2006. "Yet Another Reason to Tax Goods," 2006 Meeting Papers 188, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:188
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    References listed on IDEAS

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    Cited by:

    1. Mikhail Golosov & Aleh Tsyvinski, 2007. "Optimal Taxation with Endogenous Insurance Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 487-534.
    2. da Costa, Carlos E. & Maestri, Lucas J., 2007. "The risk properties of human capital and the design of government policies," European Economic Review, Elsevier, pages 695-713.

    More about this item

    Keywords

    Optimal Taxation; Non-observable savings; Multi-period agency;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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