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Optimal Income Taxation with Asset Accumulation

  • Sebastian Koehne

    (IIES, Stockholm University)

  • Nicola Pavoni

    (Bocconi University)

  • Arpad Abraham

    (European University Institute)

Several frictions might prevent (or make undesirable) the full taxation of savings. Due to international capital mobility, for instance, the government may not have perfect control over agent's saving and consumption decisions. We show in this paper that a restricted ability to tax savings has important implications for the taxation of labor income. Specifically, when agents have preferences with convex absolute risk-aversion, we find that optimal marginal tax rates on labor income become more regressive when savings cannot be fully taxed.

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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1161.

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Date of creation: 2011
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Handle: RePEc:red:sed011:1161
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