Optimal Income Taxation with a Stationarity Constraint in a Dynamic Stochastic Economy
Marcus Berliant () and
MPRA Paper from University Library of Munich, Germany
We consider the optimal nonlinear income taxation problem in a dynamic, stochastic environment when the government cannot change the tax rule as uncertainty resolves. Due to such a stationarity constraint, our taxation problem is reduced to a static one over an expanded type space. We strengthen the argument in the static model that the zero top marginal tax rate result is of little practical importance because it is actually relevant only when the top earner in the initial period receives the highest shock in every subsequent period. Under a general stochastic structure such that the support of types moves over time, all people’s allocations are almost surely distorted in any period.
Keywords: Optimal income taxation; New dynamic public finance (search for similar items in EconPapers)
JEL-codes: H21 (search for similar items in EconPapers)
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Journal Article: Optimal income taxation with a stationarity constraint in a dynamic stochastic economy (2017)
Working Paper: Optimal Income Taxation with a Stationarity Constraint in a Dynamic Stochastic Economy (2016)
Working Paper: Optimal income taxation with a stationarity constraint in a dynamic stochastic economy (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:61685
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