Optimal Income Taxations with Information Asymmetry: The Lagrange Multiplier Approach

Xiaojun Zhao ()
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Xiaojun Zhao: School of Economics, Peking University

Annals of Economics and Finance, 2015, vol. 16, issue 1, 199-229

Abstract: This paper considers a general class dynamic optimal problem with incen- tive compatible constraints. The first-order conditions are derived using the Lagrange multiplier method. Applied the methods developed here, the optimal taxation problems studied by Mirrlees (1971) and Golosov et al. (2003) for more general form utility function are reexamined in this paper. The explicit solutions for optimal income taxations are derived in this paper. Finally, we present numerical solutions for optimal income taxations.

Keywords: Incentive compatible constraint; Asymmetric information; Lagrange functional (search for similar items in EconPapers)
JEL-codes: C61 D90 H00 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2015:v:16:i:1:zhao

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