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
Date Written: March 1, 2001
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: Suggested Citation