Journal Article

Non-linear Capital Taxation Without Commitment

Emmanuel Farhi, Christopher Sleet, Iván Werning and Sevin Yeltekin

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 79, issue 4, pages 1469-1493
Published in print October 2012 | ISSN: 0034-6527
Published online January 2012 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1093/restud/rds001
Non-linear Capital Taxation Without Commitment

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  • Information, Knowledge, and Uncertainy
  • Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
  • Analysis of Collective Decision-making
  • Taxation, Subsidies, and Revenue

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We study efficient non-linear taxation of labour and capital in a dynamic Mirrleesian model incorporating political economy constraints. Policies are chosen sequentially over time, without commitment. Our main result is that the marginal tax on capital income is progressive, in the sense that richer agents face higher marginal tax rates.

Keywords: Capital taxation; Political economy; Progressivity; Mirrlees; H21; D72; D86; E61

Journal Article.  11038 words.  Illustrated.

Subjects: Information, Knowledge, and Uncertainy ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook ; Analysis of Collective Decision-making ; Taxation, Subsidies, and Revenue

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