 Income Taxation when Markets are IncompleteMPRA Paper from University Library of Munich, Germany Abstract: We investigate the welfare effects of proportional income taxation in a standard general equilibrium model with incomplete markets (GEI). Formally, our analysis is on the allocative effects of state-contingent income tax reforms. Tax reforms are restricted to be anonymous, publicly and truthfully announced before markets open, and they are required to result in an ex-post constrained efficient allocation. Our main result is to show that there do typically exist contingent tax reforms that are Pareto improving. These reforms, acting directly on the asset span, modify private risk sharing opportunities. Thus, unlike most of the GEI literature, the type of policy transmission mechanism considered does not rely on, second order, relative spot prices effects. Yet, the key welfare effects of our tax reforms are substantially equivalent to those induced through changes in relative spot prices, as for example in Geanakoplos-Polemarchakis (1986), Geanakoplos- Magill-Quinzii-Drèze (1990), or in Citanna-Polemarchakis-Tirelli (2001). Keywords: Incomplete Markets; Efficiency; Tax Reforms; Personal and Capital Income Taxes (search for similar items in EconPapers) Published in Decisions in Economics and Finance 2003.26(2003): pp. 97-128 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:746 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
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