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On Optimal Non-Linear Taxation and Public Good Provision in Overlapping Generations Economy

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  • Pirttilä, Jukka
  • Tuomala, Matti

Abstract

Using the self-selection approach to tax analysis within an OLG framework, the paper examines optimal non-linear labour and capital income taxation and the provision of a durable public good. Under endogenous wages, the marginal tax rules depend, among other things, on the income earning abilities of the households and suggest a novel rationale for distorting capital income taxation. For the public good, the paper derives a dynamic analogue of the second-best Samuelson rule, encompassing both inter- and intragenerational redistributive considerations, and characterises special conditions under which the first-best provision rule holds under distorting taxation.

Suggested Citation

  • Pirttilä, Jukka & Tuomala, Matti, 1999. "On Optimal Non-Linear Taxation and Public Good Provision in Overlapping Generations Economy," Discussion Papers 200, VATT Institute for Economic Research.
    • Handle: RePEc:fer:dpaper:200
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    References listed on IDEAS

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