Working Paper: NBER ID: w15302
Authors: Daron Acemoglu; Mikhail Golosov; Aleh Tsyvinski
Abstract: We study the dynamic taxation of capital and labor in the Ramsey model under the assumption that taxes and public good provision are decided by a self-interested politician who cannot commit to policies. We show that, as long as the discount factor of the politician is equal to or greater than that of the citizens, the Chamley-Judd result of zero long-run taxes holds. In contrast, if the politician is less patient than the citizens, the best (subgame perfect) equilibrium from the viewpoint of the citizens involves long-run capital taxation.
Keywords: Dynamic taxation; Political economy; Capital taxation; Labor taxation
JEL Codes: E62; H21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| politicians' discount factors (H43) | zero long-run capital taxes is optimal (H21) |
| politicians' discount factors (H43) | positive capital taxes might be optimal (H21) |
| politicians' decisions on tax rates (H29) | citizens' welfare (I39) |
| increase in capital taxes (F38) | alleviates political economy constraints (P16) |
| political behavior (D72) | taxation (H20) |