Optimal tax theory has shown that, under simple assumptions, indirect taxation such as production subsidies, tariffs, or differentiated commodity taxation, are sub-optimal and that redistribution should be achieved solely with the direct income tax. However, these important results of optimal tax theory, namely production efficiency and uniform commodity taxation under nonlinear income taxation...

Optimal Taxation, Child Care and Models of the Household This paper presents for the first time the properties of optimal piecewise linear tax systems for two-earner households, based on joint and individual incomes respectively. A key contribution is the analysis of the interaction of second earner wage differences, variation in prices of bought-in inputs into household production in the form ...

This paper employs a two-period life-cycle model to derive the optimal tax policy when educational investments are subject to credit constraints. Credit constraints arise from the limited commitment of debitors to repay loans and are endogenously determined by private banks under the non-default condition that individuals cannot be better off by defaulting. We show that the optimal redistributi...

According to the existing literature, capital taxes should not be imposed in the presence of optimal profit taxation in either unionised or competitive labour markets. We show that this conclusion does not hold for an economy with dual labour markets, where the competitive wage rate provides the outside option for unionised workers. Even with non-distortionary profit taxation it is optimal for ...

This paper presents a two-country dynamic perfect foresight Ricardian model with wealth effects to study the relationship between government spending financed by alternative taxation, the terms of trade and welfare. An increase in domestic government spending financed by a distortionary capital income tax leads the real exchange rate initially to appreciate (a pure demand effect). But along the...

considerable indirect taxes are obtained to finance different expenditures of governments. the indirect taxes have different and to somewhat contrary effects in the economy. this paper investigates on the effects of the indirect taxes on sectors’ products to finance the government expenditures. using an input-output analysis, the effects of this policy on the cost-push price inflation and emplo...

We analytically and quantitatively examine a prominent justi…cation for capital income taxation: goods preferred by those with high ability ought to be taxed. We study an environment where commodity taxes are allowed to be nonlinear functions of income and consumption and show that a relationship between ability and preferences over goods provides a novel reason for sophisticated distortionary ...

Payroll taxes represent a major distortionary in uence of governments on labor markets. This paper examines the role of payroll taxation and the social safety net for cyclical uctuations in an nonmonetary economy with labor market frictions and unemployment insurance, when the latter is only imperfectly related to search e ort. A balanced social insurance budget renders gross wages more rigid o...

The evaluation of public expenditures is a central concern of development economics-and a concern highlighted by the increasingly stringent budget constraints in both developing and developed countries. This task has also become increasingly difficult as governments have moved their focus away from providing private, tradable, goods towards public goods that are provided either without charge, ...