On Optimal Non-Linear Taxation and Public Good Provision in Overlapping Generations Economy

Jukka Pirttilä and Matti Tuomala

No 200, Discussion Papers from VATT Institute for Economic Research

Abstract: Using the self-selection approach to tax analysis within an OLG framework, the paper examines optimal non-linear labour and capital income taxation and the provision of a durable public good. Under endogenous wages, the marginal tax rules depend, among other things, on the income earning abilities of the households and suggest a novel rationale for distorting capital income taxation. For the public good, the paper derives a dynamic analogue of the second-best Samuelson rule, encompassing both inter- and intragenerational redistributive considerations, and characterises special conditions under which the first-best provision rule holds under distorting taxation.

Keywords: Non-linear income taxation, capital income taxation, public good provision, overlapping generations model, Macroeconomic policy, Talouspolitiikka, Taxation, Verotus, Taxation and Social Transfers, Julkisen talouden rahoitus ja tulonsiirrot, E620 - Macroeconomic Aspects of Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation, H210 - Taxation and Subsidies: Efficiency; Optimal Taxation, H410 - Public Goods, (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (3)

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Journal Article: On optimal non-linear taxation and public good provision in an overlapping generations economy (2001)
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