Equilibrium in a Production Economy with an Income Tax

Wilbur Coleman

Econometrica, 1991, vol. 59, issue 4, 1091-1104

Abstract: This paper develops a method to study an infinite-horizon production economy distorted by a state-dependent income tax. This setting permits taxes to depend on the capital stock, an endogenous state variable, and thus captures situations where the evolution for capital and taxes is jointly determined. To solve this model, the consumption function is represented as a fixed point of a nonlinear monotone operator that is defined such that its nth iteration computes the consumption function n steps away from the horizon for a corresponding finite-horizon economy. The oparator's monotonicity is exploited in proving the existence of, and constructing, an equilibrium. Copyright 1991 by The Econometric Society.

Date: 1991
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Working Paper: Equilibrium in a production economy with an income tax (1989)
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