Optimal Indirect and Capital Taxation

Public

In this paper, we consider an environment in which agents’ productivities are private information, potentially multi-dimensional, and follow arbitrary stochastic processes. We allow for arbitrary incentive-compatible and physically feasible tax schemes. We prove that it is typically Pareto optimal to have positive capital taxes. As well, we prove that in any given period, it is Pareto optimal to tax consumption goods at a uniform rate.

Published in The Review of Economic Studies (Vol. 70, Iss. 3, July 2003, pp. 569–587), https://doi.org/10.1111/1467-937X.00256.

An updated version of this Working Paper is available as Staff Report 293.