EconPapers    
Economics at your fingertips  
 

Pareto Efficient Taxation and Expenditures: Pre- and Re-distribution

Joseph Stiglitz

No 23892, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper shows that there is a presumption that Pareto efficient taxation entails a positive tax on capital. When tax and expenditure policies can affect the market distribution of income in ways that cannot be directly offset, those effects need to be taken into account, reducing the burden imposed on distortionary redistribution. The paper extends the 1976 Atkinson-Stiglitz results to a dynamic, overlapping generations model, correcting a misreading of the result on the desirability of a zero capital tax. That result required separability of consumption from labor and that the only unobservable differences among individuals were in (fixed) labor productivities. In a general equilibrium model, one needs to take into account the effects of policy changes on binding self-selection constraints. In a simple model with time separability but with non-separability between consumption and leisure, capital taxation depends on the complementarity/substitutability of leisure during work with retirement consumption. The final section constructs a simple two class model, capitalists who maximize dynastic welfare and workers who save for retirement, whose productivity can be enhanced by (publicly provided) education. It derives a simple expression for the optimal capital tax, which is positive, so long as the social welfare function is sufficiently equalitarian and the productivity of educational expenditures are sufficiently high.

JEL-codes: E2 H2 H41 H52 I24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-pub
Date: 2017-09
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Published as Joseph E. Stiglitz, 2018. "Pareto efficient taxation and expenditures: Pre- and re-distribution," Journal of Public Economics, .

Downloads: (external link)
http://www.nber.org/papers/w23892.pdf (application/pdf)

Related works:
Journal Article: Pareto efficient taxation and expenditures: Pre- and re-distribution (2018) Downloads
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:nbr:nberwo:23892

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w23892

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2019-03-31
Handle: RePEc:nbr:nberwo:23892