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Optimal income taxation with asset accumulation

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  • Abraham, Arpad
  • Koehne, Sebastian
  • Pavoni, Nicola

Abstract

Several frictions restrict the government's ability to tax assets. First of all, it is very costly to monitor trades on international asset markets. Moreover, agents can resort to non-observable low-return assets such as cash, gold or foreign currencies if taxes on observable assets become too high. This paper shows that limitations in asset observability have important consequences for the taxation of labor income. Using a dynamic moral hazard model of social insurance, we �find that optimal labor income taxes typically become less progressive when assets are imperfectly observed. We evaluate the effect quantitatively in a model calibrated to U.S. data.

Suggested Citation

  • Abraham, Arpad & Koehne, Sebastian & Pavoni, Nicola, 2012. "Optimal income taxation with asset accumulation," MPRA Paper 38629, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:38629
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Optimal Income Taxation with Asset Accumulation
      by Christian Zimmermann in NEP-DGE blog on 2015-03-05 11:42:45

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    Cited by:

    1. Marek Kapička & Julian Neira, 2019. "Optimal Taxation with Risky Human Capital," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(4), pages 271-309, October.
    2. Koehne, Sebastian & Kuhn, Moritz, 2015. "Optimal taxation in a habit formation economy," Journal of Public Economics, Elsevier, vol. 122(C), pages 31-39.
    3. Koehne, Sebastian & Kuhn, Moritz, 2013. "Optimal capital taxation for time-nonseparable preferences," MPRA Paper 45203, University Library of Munich, Germany.
    4. Spencer Bastani & Sören Blomquist & Luca Micheletto, 2013. "The Welfare Gains Of Age‐Related Optimal Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 1219-1249, November.
    5. Spencer Bastani & Sören Blomquist & Luca Micheletto, 2013. "The Welfare Gains Of Age‐Related Optimal Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(4), pages 1219-1249, November.
    6. Christine Ho & Nicola Pavoni, 2020. "Efficient Child Care Subsidies," American Economic Review, American Economic Association, vol. 110(1), pages 162-199, January.
    7. Ábrahám, Árpád & Koehne, Sebastian & Pavoni, Nicola, 2011. "On the first-order approach in principal-agent models with hidden borrowing and lending," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1331-1361, July.
    8. Campos, Rodolfo G. & Reggio, Iliana, 2014. "Measurement error in imputation procedures," Economics Letters, Elsevier, vol. 122(2), pages 197-202.

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    More about this item

    Keywords

    Optimal Income Taxation; Capital Taxation; Asset Accumulation; Progressivity;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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