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Optimal Taxation in Infinitely-Lived Agent and Overlapping Generations Models: A Review

FRB Richmond Economic Quarterly, Vol. 87, No. 2, Spring 2001, pp. 23-44

22 Pages Posted: 30 Nov 2012  

Andres Erosa

University of Toronto - Department of Economics

Martin Gervais

University of Iowa; IFS

Date Written: 2001

Abstract

A survey of the literature on optimal taxation both in infinitely-lived agent models and life-cycle economies suggests that no consensus emerges regarding the optimal tax rate on capital income. Although the tax rate is invariably zero in the long-run steady state of infinitely-lived agent models, this same zero-tax prescription holds for life-cycle economies only under extremely stringent conditions. Both models suggest that capital income should be taxed at non-zero rates during the transition to long-run equilibrium unless individuals have separable preferences between consumption and leisure.

Suggested Citation

Erosa, Andres and Gervais, Martin, Optimal Taxation in Infinitely-Lived Agent and Overlapping Generations Models: A Review (2001). FRB Richmond Economic Quarterly, Vol. 87, No. 2, Spring 2001, pp. 23-44. Available at SSRN: https://ssrn.com/abstract=2182643

Andres Erosa

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada

Martin Gervais (Contact Author)

University of Iowa ( email )

108 Pappajohn Building
Iowa City, IA 52242
United States

IFS ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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