Information and Multi-Period Optimal Income Taxation with Government Commitment

51 Pages Posted: 6 Apr 2007 Last revised: 21 Sep 2010

See all articles by Dagobert L. Brito

Dagobert L. Brito

affiliation not provided to SSRN

Jonathan H. Hamilton

affiliation not provided to SSRN

Steven M. Slutsky

affiliation not provided to SSRN

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: December 1987

Abstract

The optimal income taxation problem has been extensively studied in one- period models. When consumers work for many periods, this paper analyzes what information, if any, that the government learns about abilities in one period can be used in later periods to attain more redistribution than in a one- period world. liken the government must commit itself to future tax schedules, the gains cane from relaxing self-selection constraints by intertemporal nonstationarity. The effect of nonstationarity is analogous to that of randomization in one-period models. In a model with two ability classes it is shown that the key use of information is that only a single lifetime self-selection constraint for each type of consumer must be imposed. Sane necessary and sufficient conditions for randomization or nonstationarity are given. The planner can make additional use of the information when individual and social rates of time discounting differ. In this case, the limiting tax schedule is a nondistorting one if the government has a lower discount rate than individuals.

Suggested Citation

Brito, Dagobert L. and Hamilton, Jonathan H. and Slutsky, Steven M. and Stiglitz, Joseph E., Information and Multi-Period Optimal Income Taxation with Government Commitment (December 1987). NBER Working Paper No. w2458. Available at SSRN: https://ssrn.com/abstract=977753

Dagobert L. Brito (Contact Author)

affiliation not provided to SSRN

No Address Available

Jonathan H. Hamilton

affiliation not provided to SSRN

No Address Available

Steven M. Slutsky

affiliation not provided to SSRN

No Address Available

Joseph E. Stiglitz

Columbia Business School - Finance and Economics ( email )

3022 Broadway
814 Uris Hall
New York, NY 10027
United States
(212) 854-0671 (Phone)
(212) 662-8474 (Fax)

HOME PAGE: http://www.josephstiglitz.com

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

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