Martin Gervais and Andrés Erosa
A survey of the literature on optimal taxation both in infinitely-lived agent models and life-cycle economies suggests that no consensus emerges regarding the optimal tax rate on capital income. Although the tax rate is invariably zero in the long-run steady state of infinitely-lived agent models, this same zero-tax prescription holds for life-cycle economies only under extremely stringent conditions. Both models suggest that capital income should be taxed at non-zero rates during the transition to long-run equilibrium unless individuals have separable preferences between consumption and leisure.
Our Research Focus: Economic Growth and Business Cycles
To receive a notification by email when Economic Quarterly is posted online or to order single copies of past issues, click on the links below (published online only since 2012).