Credibility in Optimal Factor Taxation
نویسنده
چکیده
This paper examines optimal factor taxation when output is produced from labour and capital and some (or all) households save capital. It is shown that there is a reputational equilibrium in which the government has no incentive to change its announced tax policies. In this equilibrium, the Judd-Chamley assertion that the tax on capital income tends to zero in the limit holds. This is independent of the capital owners’ proportion of wages as well as their weight in the social welfare function. The optimal wage tax is determined by a specific elasticity rule. Journal of Economic Literature: H21, C73, E62
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