On Optimal Non-Linear Taxation and Public Good Provision in an Overlapping Generations Economy

Journal of Public Economics (Impact Factor: 1.46). 03/2001; DOI: 10.1016/S0047-2727(99)00105-X

Posted: 7 Sep 2014

See all articles by Jukka Pirttila

Jukka Pirttila

United Nations - World Institute for Development Economics Research (UNU/WIDER); Tampere University of Technology

Matti Tuomala

University of Tampere

Date Written: March 1, 2001

Abstract

Using the self-selection approach to tax analysis within an OLG framework, the paper examines optimal non-linear labour and capital income taxation and the provision of a durable public good. Under endogenous wages, the marginal tax rules depend on the influence of the tax instruments on self-selection and on the income earning abilities of the households. In particular, we found that production inefficiency occurs in the model, justifying capital income taxation. For the public good, the paper derives a dynamic analogue of the second-best Samuelson rule, encompassing both inter- and intragenerational redistributive considerations. Furthermore, the usual conditions guaranteeing the efficiency of the first-best Samuelson rule are not sufficient in the present model.

Keywords: Non-linear income taxation, Capital income taxation, Public good provision, Overlapping generations models

JEL Classification: H21, H41

Suggested Citation

Pirttila, Jukka and Tuomala, Matti, On Optimal Non-Linear Taxation and Public Good Provision in an Overlapping Generations Economy (March 1, 2001). Journal of Public Economics (Impact Factor: 1.46). 03/2001; DOI: 10.1016/S0047-2727(99)00105-X . Available at SSRN: https://ssrn.com/abstract=2492525

Jukka Pirttila (Contact Author)

United Nations - World Institute for Development Economics Research (UNU/WIDER) ( email )

Katajanokanlaituri 6B
Helsinki, FIN-00160
Finland

Tampere University of Technology ( email )

P.O. 541, Korkeakoulunkatu 8 (Festia building)
Tampere, FI-33101
Finland

Matti Tuomala

University of Tampere ( email )

P.O. Box 607
Tampere, FIN-33101
Finland
+358-3-2156031 (Phone)
+358-3-2157254 (Fax)

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