Optimal taxation in a two sector economy with heterogeneous agents

Selim, S. 2010. Optimal taxation in a two sector economy with heterogeneous agents. Economics Bulletin. 30 (1), pp. 534-542.

TitleOptimal taxation in a two sector economy with heterogeneous agents
AuthorsSelim, S.
Abstract

In this paper we examine the optimal taxation problem in a two sector economy with heterogeneous agents. We show that in a steady state of this economy the optimal capital income tax rate can be different from zero. In this economy since capital and labour margins are interdependent, any difference in investment goods and consumption goods prices allows the government to tax capital income in one sector and undo the tax distortion by differential labour income taxation. This policy serves efficiency purpose as it restores the production efficiency condition.

JournalEconomics Bulletin
Journal citation30 (1), pp. 534-542
ISSN1545-2921
Year2010
PublisherEconomics Bulletin
Web address (URL)http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I1-P49.pdf
Publication dates
Published2010

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