Optimal Nonlinear Taxation of Income and Savings in a Two Class Economy
Optimal nonlinear taxation of income and savings is considered in a two-period model with two individuals who have additively separable preferences and who only differ in their skill levels. When the government can commit to its second period policy, taxes on savings do not form part of the optimal tax mix. When commitment is not possible, the optimal tax scheme distorts private savings behavior. If the types are separated in period one, it is optimal to subsidize the savings of both types of individual at the margin. If the types are pooled in period one, it is optimal for the low-skilled (high-skilled) individual to face a marginal savings tax (subsidy). In both cases, the subsidy to the high-skilled individual helps offset his disincentive to save that arises because some of his savings will be redistributed to the low-skilled individual in the second period. The savings of the low-skilled individual in the separating case are taxed so as to relax an incentive compatibility constraint.
|Date of creation:||Nov 2005|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.vanderbilt.edu/econ/wparchive/index.html|
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.:
- Berliant, Marcus & Ledyard, John, 2011.
"Optimal Dynamic Nonlinear Income Taxes with No Commitment,"
31749, University Library of Munich, Germany.
- Marcus Berliant & John O. Ledyard, 2014. "Optimal Dynamic Nonlinear Income Taxes with No Commitment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(2), pages 196-221, 04.
- Marcus Berliant & John Ledyard, 2004. "Optimal Dynamic Nonlinear Income Taxes with No Commitment," Public Economics 0403004, EconWPA, revised 21 Jun 2005.
- Dagobert L. Brito & Jonathan H. Hamilton & Steven M. Slutsky & Joseph E. Stiglitz, 1990.
"Pareto Efficient Tax Structures,"
NBER Working Papers
3288, National Bureau of Economic Research, Inc.
- Robin Boadway & Pierre Pestieau, 2006.
"Tagging and Redistributive Taxation,"
1071, Queen's University, Department of Economics.
- Guesnerie Roger & Seade Jesus, 1981.
"Nonlinear pricing in a finite economy,"
CEPREMAP Working Papers (Couverture Orange)
- Boadway, R. & Marceau, N. & Marchand, M., .
"Investment in education and the time inconsistency of redistributive tax policy,"
CORE Discussion Papers RP
-1219, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Boadway, Robin & Marceau, Nicolas & Marchand, Maurice, 1996. "Investment in Education and the Time Inconsistency of Redistributive Tax Policy," Economica, London School of Economics and Political Science, vol. 63(250), pages 171-89, May.
- Robin Boadway & Nicolas Marceau & Maurice Marchand, 1992. "Investment in Education and the Time Inconsistency of Redistributive Tax Policy," Working Papers 860, Queen's University, Department of Economics.
- Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 173-91, April.
- Joseph E. Stiglitz, 1981.
"Self-Selection and Pareto Efficient Taxation,"
NBER Working Papers
0632, National Bureau of Economic Research, Inc.
- Dillen, Mats & Lundholm, Michael, 1996.
"Dynamic income taxation, redistribution, and the ratchet effect,"
Journal of Public Economics,
Elsevier, vol. 59(1), pages 69-93, January.
- Dillen, M. & Lundholm, M., 1992. "Dynamic Income Taxation, Redistribution, and the Ratchet Effect," Papers 1992-3, Uppsala - Working Paper Series.
- Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059, March.
- Jonathan Hamilton & Pierre Pestieau, 2005.
"Optimal Income Taxation and the Ability Distribution: Implications for Migration Equilibria,"
International Tax and Public Finance,
Springer, vol. 12(1), pages 29-45, January.
- HAMILTON, Jonathan & PESTIEAU, Pierre, 2002. "Optimal income taxation and the ability distribution: implications for migration equilibria," CORE Discussion Papers 2002036, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Craig Brett & John A. Weymark, 2004.
"Public Good Provision and the Comparative Statics of Optimal Nonlinear Income Taxation,"
Vanderbilt University Department of Economics Working Papers
0415, Vanderbilt University Department of Economics.
- Craig Brett & John A. Weymark, 2008. "Public Good Provision And The Comparative Statics Of Optimal Nonlinear Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 255-290, 02.
- Roberts, Kevin, 1984. "The Theoretical Limits of Redistribution," Review of Economic Studies, Wiley Blackwell, vol. 51(2), pages 177-95, April.
- Browning, Martin & Burbidge, John, 1990. "Consumption and Income Taxation," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 281-92, January.
- Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
- Pirttila, Jukka & Tuomala, Matti, 2001. "On optimal non-linear taxation and public good provision in an overlapping generations economy," Journal of Public Economics, Elsevier, vol. 79(3), pages 485-501, March.
- Adriano Rampini & Alberto Bisin, 2005.
"Markets as Beneficial Constraints on the Government,"
2005 Meeting Papers
325, Society for Economic Dynamics.
- Bisin, Alberto & Rampini, Adriano A., 2006. "Markets as beneficial constraints on the government," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 601-629, May.
- Ordover, J. A. & Phelps, E. S., 1979. "The concept of optimal taxation in the overlapping-generations model of capital and wealth," Journal of Public Economics, Elsevier, vol. 12(1), pages 1-26, August.
- Weymark, John A, 1987. "Comparative Static Properties of Optimal Nonlinear Income Taxes," Econometrica, Econometric Society, vol. 55(5), pages 1165-85, September.
When requesting a correction, please mention this item's handle: RePEc:van:wpaper:0525. 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: (John P. Conley)
If references are entirely missing, you can add them using this form.