Financial Management White Papers
The Effect of the Government Temporal Horizon on the Optimal Tax Structure
Overview It is generally assumed in the optimal taxation literature that a benevolent social planner would set taxes so as to maximize the representative agent's utility over an infinite horizon. The optimal tax rates on human as well as physical capital income and on consumption would be zero in the long-run under alternative specifications of the leisure activity. The government expenditure would be financed by the interest earned on the assets raised by accumulating budget surpluses during an initial phase of relatively high taxation. This paper analyses the effect of the government temporal horizon on the optimal tax structure in a two-sector endogenous growth model calibrated to match US data.
| Publisher | University of Illinois | File Format | PDF, requires Acrobat Rdr 5 |
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| Date Published | January 2004 | Downloads | 1 |
| Format | White Papers | ||
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