Optimal dynamic taxation with indivisible labour

Basu, P.; Marsiliani, L.; Renström, TI.

doi:10.1111/j.1467-9957.2004.00418.x

Optimal dynamic taxation with indivisible labour

Basu, P.; Marsiliani, L.; Renström, TI.

Authors

P. Basu

Professor Laura Marsiliani laura.marsiliani@durham.ac.uk
Professor

Dr Thomas Renstrom t.i.renstrom@durham.ac.uk
Associate Professor

Abstract

How should a government arrange taxes on labour and capital over time? To provide an answer, we develop the field of optimal dynamic taxation further by (i) incorporating indivisible labour and (ii) analysing the short-run dynamics of the capital and labour taxes under the second-best programme. We derive two classes of preferences for which the optimal capital tax reaches zero in a finite time. If leisure is normal, the labour tax is gradually increased for a period and then kept constant, and, if leisure is neutral, labour is not taxed at all. Finally, we analyse the dynamics of labour supply under the optimal tax programme.

Citation

Basu, P., Marsiliani, L., & Renström, T. (2004). Optimal dynamic taxation with indivisible labour. Manchester School, 72(s1), 34-54. https://doi.org/10.1111/j.1467-9957.2004.00418.x

Journal Article Type	Article
Publication Date	2004-09
Deposit Date	Aug 19, 2008
Journal	Manchester School
Print ISSN	1463-6786
Electronic ISSN	1467-9957
Publisher	University of Manchester
Peer Reviewed	Peer Reviewed
Volume	72
Issue	s1
Pages	34-54
DOI	https://doi.org/10.1111/j.1467-9957.2004.00418.x
Public URL	https://durham-repository.worktribe.com/output/1555058