Dynamic Optimal Taxation with Private Information

By Stefania Albanesi, Christopher Sleet. 2006

323 citations recorded by the source corpus.

We study dynamic optimal taxation in a class of economies with private information. Constrained optimal allocations in these environments are complicated and history-dependent. Yet, we show that they can be attained as competitive equilibria in market economies supplemented with simple tax systems. The market structure in these economies is identical to that in Bewley (1986): agents can trade current consumption and risk-free claims to future consumption, subject to a budget constraint and a debt limit. The tax system describes additional transfers that the agents must make to the government. It conditions them upon only two observable characteristics of an agent: their accumulated stock of claims, or wealth, and their current labour income. It implies optimal tax functions that are not additively separable in these variables. The marginal wealth tax is negatively correlated with income and its expected value is generally positive. The marginal income tax is decreasing in wealth.

Subfields: Accounting, Economics and Econometrics, Gender Studies

View Paper: https://www.semanticscholar.org/paper/3381ed345822e15ea3b73fed7cfbb270ed001317

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Citations in the corpus

The Surprising Power of Age-Dependent Taxes (2011, background): “Consider an individuals problem of maximizing lifetime utility (2) given a wage path w t T t=1 and the lifetime budget constraint PT t=1R T t y t ct = 0.”
Persistent Private Information (2008, background): “This additional source of variability may have interesting implications for consumption dynamics and asset prices.17 Another realm of application is to extend models of dynamic optimal taxation, such as Albanesi and Sleet (2006), to allow for persistent private information.”
Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy (2010, unknown): “In particular, while this paper does not provide results on the decentralization of the constrained efficient allocations they study, Albanesi and Sleet (2006) and Kocherlakota (2006) study tax systems that could decentralize those allocations.”
Optimal Taxation with Endogenous Insurance Markets (2007, background): “…in dynamic settings, there is also an intertemporal wedge since the optimal allocations satisfy (assuming separable utility) for all ( ( )) ( ( +1)) ( +1 +1) Golosov and Tsyvinski (2003), Albanesi and Sleet (2003), and Kocherlakota (2003b) used this result to study optimal implementation via taxes.”
New Dynamic Public Finance: A User's Guide [with Comments and Discussion] (2006, background): “…of the optimum, e.g., showing that the intertemporal wedge is positive (Golosov, Kocherlakota, and Tsyvinski, 2003) or on numerical characterizations for a particular skills processes, e.g., i.i.d. skills in Albanesi and Sleet (2006) or absorbing disability shocks in Golosov and Tsyvinski (2006).”
Optimal Welfare-to-Work Programs (2007, unknown): “In what follows, when we refer to the “actual” system, we mean the LFA variant, and analyze how the planner would deliver the same utility entitlement implicit in the LFA version of the actual program.”
Dynamic Mechanism Design: A Myersonian Approach (2014, unknown): “V 〈χ∗,ψ∗〉 i0 (θi0) is nondecreasing in θi0 by the envelope formula (1) given that Ui is nondecreasing in θi.”