Basu, P. and Marsiliani, L. and Renström, T I. (2004) 'Optimal dynamic taxation with indivisible labour.', Manchester School., 72 (s1). pp. 34-54.
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.
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|Publisher Web site:||http://dx.doi.org/10.1111/j.1467-9957.2004.00418.x|
|Date accepted:||No date available|
|Date deposited:||No date available|
|Date of first online publication:||September 2004|
|Date first made open access:||No date available|
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