Optimal Dynamic Taxation , Capital Taxation , First-Order Approach
Abstract:
This paper analyzes Pareto optimal taxation of labor and capital income in a lifecycle
framework with private information and idiosyncratic risk. We focus on historyindependent tax systems. We thereby complement the Mirrlees taxation literature, which has so far typically either characterized optimal history-dependent distortions or focused
on static environments. For labor income taxes, we provide a novel decomposition of tax
formulas into a redistribution and an insurance component. The latter is independent of
redistributive motives and is determined by the degree of income risk and risk aversion.
We show that the optimal linear capital tax rate is non-zero and derive a simple formula,
which trades off redistributive and insurance benefits against the efficiency loss from savings distortions. Our quantitative results show that the insurance component contributes
significantly to optimal labor tax rates. Optimal capital taxes are significant and yield
sizable welfare gains.
Dieser Eintrag ist Teil der Universitätsbibliographie.
Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.