Optimal Income Taxes: An Example
نویسنده
چکیده
We develop an algorithm for computing optimal taxes in an open economy extension of the standard one-sector growth model. Typically in the literature on optimal taxation, the first period tax rate is arbitrarily assumed. We construct an example where the first period tax rate is endogenously determined. In addition to computing the exact time path of taxes, the example brings forth some interesting policy implications for developing countries. ∗I am thankful to Carlos Végh, Amartya Lahiri, Luisa Lambertini, and Alvaro Riascos for helpful comments and suggestions. All remaining errors are mine. Address for correspondence: Department of Economics, 260 Heady Hall, Iowa State University, Ames IA 50011; E-mail: [email protected]
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