Pareto Efficient Income Taxation with Stochastic Abilities / Marco Battaglini, Stephen Coate.

Format:

Book

Author/Creator:

Battaglini, Marco.

Contributor:

National Bureau of Economic Research.

Coate, Stephen.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10119.

NBER working paper series no. w10119

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

This paper studies Pareto efficient income taxation in an economy with infinitely-lived individuals whose income generating abilities evolve according to a two-state Markov process. The study yields two main results. First, when individuals are risk neutral, the fraction of individuals who face a positive marginal income tax rate is always positive but converges to zero. Moreover, the tax rate these individuals face also goes to zero. Second, Pareto efficient income tax systems can be time-consistent even when the degree of correlation in ability types is large.

Notes:

Print version record

November 2003.