Nonoptimality of the Friedman Rule with Capital Income Taxation

Petrucci, Alberto (2008) Nonoptimality of the Friedman Rule with Capital Income Taxation. [Working Paper]. p. 34.

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This paper studies the efficient taxation of money and factor income in intertemporal optimizing growth models with infinite horizons, transaction costs technologies and flexible prices. Second-best optimality calls for a positive inflation tax and a non-zero capital income tax when there are restrictions on taxation of production factors or profits/rents. Our cases of nonoptimality of the Friedman rule —which differ from those of Mulligan and Sala-i-Martin (1997) and extend substantially those of Schmitt-Grohè and Uribe (2004a)— follow from the violation of the Diamond and Mirrlees (1971) principle on production efficiency.

Item Type:Report / Paper (Working Paper)
Research documents and activity classification:Working Papers > Non-Refereed Working Papers / of national relevance only
Divisions:Department of Business and Management
Uncontrolled Keywords:Optimal inflation tax. Factor taxation. Transaction costs technology. Second-best analysis. Capital accumulation.
MIUR Scientific Area:Area 13 - Economics and Statistics > SECS-P/01 Political Economy
Deposited By:Chiara Annulli (admin)
Deposited On:27 Oct 2009 15:44
Last Modified:05 Apr 2013 22:12

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