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Capital taxation in a simple finite-horizon OLG model

By Charles Blackorby and Craig Brett

Abstract

In a simple finite-horizon overlapping-generations model where the government has the power to levy commodity taxes and to implement uniform lump-sum transfers, and individuals as well as the government can purchase units of a storable good in order to transfer resources from the present to the future, we derive the equations that implicitly define the taxes and subsidies that are part of the second-best Pareto optima. In this context we first show that there is production efficiency. We then show that taxes on capital income/savings are required at almost all Pareto optima. Finally we show that there are no restriction on preferences or technologies that are consistent with a general exemption of capital income/savings from the tax base

Topics: HG
Publisher: University of Warwick, Department of Economics
Year: 2004
OAI identifier: oai:wrap.warwick.ac.uk:1480

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