Optimal Nonlinear Taxation in an Overlapping-Generations Setting with Money as an Asset

Akira Yakita

FinanzArchiv: Public Finance Analysis, 2008, vol. 64, issue 1, 19-32

Abstract: We investigate the optimal nonlinear wage and interest-income taxes with money as an asset, assuming that there are two types of labor, which are not perfect substitutes in production, and that each type is difficult for the policymaker to observe. It is shown that the optimal interest-income taxation differentiates asset prices facing two types of individuals, and hence that the zero-nominal-interest-rate rule holds for the high-ability type, although not for the low-ability type unless the mimickers' valuation of future consumption is the same as that of the true low-ability individual without separability of the utility function.

Keywords: Nonlinear income taxation; inflation tax; overlapping-generations model (search for similar items in EconPapers)
JEL-codes: D31 E31 H2 (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1628/001522108X312050

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