EconPapers    
Economics at your fingertips  
 

On the Optimal Timing of Taxes

John Hassler (), Per Krusell (), Kjetil Storesletten () and Fabrizio Zilibotti ()

No 4731, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper analyses the optimal timing of taxes on capital income. We show that the celebrated result that taxes should front-loaded with an initially high tax followed by a discrete jump to the steady state is knife-edge, hinging on capital having a constant depreciation rate. An empirically supported deviation from this case, involving depreciation rates that increase over the lifespan of the investment, implies that optimal taxes should oscillate. Furthermore, the optimality of fluctuating tax rates hinges on the government being able to commit to the path of future tax rates. Without commitment, optimal taxes may be smooth also under accelerating depreciation. In a calibrated example, we find that optimal taxes are oscillating under commitment and smooth without commitment.

Keywords: capital depreciation; optimal taxation; tax dynamics; time-consistency (search for similar items in EconPapers)
JEL-codes: D90 E61 H21 H30 (search for similar items in EconPapers)
Date: 2004-11
New Economics Papers: this item is included in nep-dge, nep-pbe and nep-pub
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4731 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:4731

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=4731

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2020-07-10
Handle: RePEc:cpr:ceprdp:4731