@article{92036f74c41246f4bdbf792eb7647ad1,
title = "Optimal indirect and capital taxation",
abstract = "We consider an environment in which agents' skills are private information and follow arbitrary stochastic processes. We prove that it is typically Pareto optimal for an individual's marginal benefit of investing in capital to exceed his marginal cost of doing so. This wedge is consistent with a positive tax on capital income. We also prove that it is Pareto optimal for the marginal rate of substitution between any two consumption goods to equal the marginal rate of transformation. This lack of a wedge is consistent with uniform taxation of consumption goods within a period.",
author = "Mikhail Golosov and Narayana Kocherlakota and Aleh Tsyvinski",
note = "Funding Information: Acknowledgements. Kocherlakota acknowledges the support of NSF SES-0076315. Versions of this paper were presented at a large number of seminars and conferences; we thank the seminar participants for their comments. We thank the editor (Mark Armstrong) and two referees for their help. We also thank Yan Bai, Marco Bassetto, Florin Bidian, Harold Cole, Larry Jones, Barbara McCutcheon, Patrick Kehoe, Timothy Kehoe, Chris Phelan, Jing Zhang, Rui Zhao, and especially V. V. Chari for their comments. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.",
year = "2003",
month = jul,
doi = "10.1111/1467-937X.00256",
language = "English (US)",
volume = "70",
pages = "569--587",
journal = "Review of Economic Studies",
issn = "0034-6527",
publisher = "Oxford University Press",
number = "3",
}