Asset Value Constraints in Models of Incomplete Factor Taxation

David Arseneau, Sanjay Chugh and André Kurmann

Cahiers de recherche from CIRPEE

Abstract: This paper clarifies the role of initial asset value constraints in Ramsey models of incomplete factor taxation. We show that the optimal long-run capital tax is zero in the long run if and only if there is no binding constraint on the initial capital tax rate. This finding contrasts with Armenter (2008) who argues that zero long-run capital taxes reappear in models of incomplete factor taxation as long as the government is barred from manipulating initial asset wealth. The reason for this difference is that the two constraints cannot both be binding at the same time. Hence, in Armenter’s (2008) analysis, the initial asset value constraint is necessarily more restrictive than the constraint on the initial capital tax rate.

Keywords: Ramsey equilibrium; incomplete factor taxation (search for similar items in EconPapers)
JEL-codes: E62 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-acc and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:0949

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