On the Assumptions of the Optimal Taxation Problem: Is Distortionary Taxation a Burden or a Blessing?

Pedro Teles

No 926, 2009 Meeting Papers from Society for Economic Dynamics

Abstract: I consider a reasonable deviation from the standard assumptions in the optimal taxation literature on public consumption and show that the results on the optimal taxes are substantially altered. In particular, `distortionary' taxes may be optimal after all. This reveals that, in contrast to the common practice, the analysis of optimal taxation cannot be done independently of the analysis of the optimal public provision of goods and services.

Date: 2009
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