Optimal Dynamic Taxation with Indivisible Labour

Renström, Thomas I, Laura Marsiliani and Parantap Basu

No 4190, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this Paper, we take the field of optimal dynamic taxation further in two directions. Using a model with invisible labour, as in Hansen (1986) and Rogerson (1988), we first explore the short-run dynamics of the capital-income tax, particularly whether the tax, under the second-best programme, goes to zero in finite or infinite time. We derive two classes of preferences for which the optimal capital tax reaches zero in a finite time. Second, we ask what preference structures will leave labour untaxed at all times? An exponential preference structure is derived, for which labour is untaxed both in the short and long run.

Keywords: Optimal taxation; Dynamic taxation; Indivisible labour (search for similar items in EconPapers)
JEL-codes: E62 H21 (search for similar items in EconPapers)
Date: 2004-01
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-pub
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Citations: View citations in EconPapers (3)

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