Dynamic Optimal Income Taxation with Government Commitment

30 Pages Posted: 18 Apr 2007

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: February 1990

Abstract

The optimal income taxation problem has been extensively studied in one-period models. This paper analyzes optimal income taxation when consumers work for many periods. We also analyze 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. When the government must commit itself to future tax schedules, intertemporal nonstationarity of tax schedules could relax the self-selection constraints and lead to Pareto improvements. The effect of nonstationarity is analogous to that of randomization in one-period models. The use of information is limited since only a single lifetime self-selection constraint for each type of consumer exists. These results hold when individuals and the government have the same discount rates. 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., Dynamic Optimal Income Taxation with Government Commitment (February 1990). NBER Working Paper No. w3265. Available at SSRN: https://ssrn.com/abstract=980910

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 )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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