Intergenerational Allocation of Government Expenditures : Externalities and Optimal Taxation

This paper studies optimal capital and labor income taxes when the benefits of public goods are age-dependent. Provided the government can impose a consumption tax, it can attain the first-best resource allocation. This involves the uniform taxation of the cohorts' labor income and a zero capital income tax. With no consumption tax and optimally chosen government spending, labor income should be taxed nonuniformly across cohorts and the capital income tax should be nonzero. Deviations of the public goods from their respective optima create distortions. These affect the labor supply decisions of both cohorts and capital accumulation, providing a further reason to tax (or subsidize) capital income.

Bibliographic Details

Main Authors:	Iqbal, Kazi, Turnovsky, Stephen J.
Format:	Journal Article biblioteca
Language:	EN
Published:	2008
Subjects:	Taxation and Subsidies: Efficiency, Optimal Taxation H210, Personal Income and Other Nonbusiness Taxes and Subsidies, includes inheritance and gift taxes H240, Business Taxes and Subsidies including sales and value-added (VAT) H250, Public Goods H410, National Government Expenditures and Related Policies: General H500, National Budget, Budget Systems H610,
Online Access:	http://hdl.handle.net/10986/5868
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