Political economy of Ramsey taxation

Daron Acemoglu; Mikhail Golosov; Aleh Tsyvinski

doi:10.1016/j.jpubeco.2010.10.014

Political economy of Ramsey taxation

Daron Acemoglu, Mikhail Golosov, Aleh Tsyvinski

Economics

Research output: Contribution to journal › Article › peer-review

31 Scopus citations

Abstract

We study the dynamic taxation of capital and labor in the Ramsey model under the assumption that taxes and public good provision are decided by a self-interested politician who cannot commit to policies. We show that, as long as the politician is as patient as the citizens, the Chamley-Judd result of zero long-run taxes holds. In contrast, if the politician is less patient than the citizens, the best (subgame perfect) equilibrium from the viewpoint of the citizens involves long-run capital taxation.

Original language	English (US)
Pages (from-to)	467-475
Number of pages	9
Journal	Journal of Public Economics
Volume	95
Issue number	7-8
DOIs	https://doi.org/10.1016/j.jpubeco.2010.10.014
State	Published - Aug 2011

All Science Journal Classification (ASJC) codes

Finance
Economics and Econometrics

Keywords

Capital taxation
Fiscal policy
Political economy

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10.1016/j.jpubeco.2010.10.014

Cite this

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title = "Political economy of Ramsey taxation",

abstract = "We study the dynamic taxation of capital and labor in the Ramsey model under the assumption that taxes and public good provision are decided by a self-interested politician who cannot commit to policies. We show that, as long as the politician is as patient as the citizens, the Chamley-Judd result of zero long-run taxes holds. In contrast, if the politician is less patient than the citizens, the best (subgame perfect) equilibrium from the viewpoint of the citizens involves long-run capital taxation.",

keywords = "Capital taxation, Fiscal policy, Political economy",

author = "Daron Acemoglu and Mikhail Golosov and Aleh Tsyvinski",

note = "Funding Information: We thank the editor and the anonymous referees for the useful comments. We are grateful to Andrew Atkeson, Tim Besley, V.V. Chari, Stephen Coate, and, especially, Pierre Yared for comments. We thank Georgy Egorov and Oleg Itskhoki for research assistance and the National Science Foundation for financial support. Golosov and Tsyvinski thank Einaudi Institute for Economics and Finance for hospitality. ",

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AU - Acemoglu, Daron

AU - Golosov, Mikhail

AU - Tsyvinski, Aleh

N1 - Funding Information: We thank the editor and the anonymous referees for the useful comments. We are grateful to Andrew Atkeson, Tim Besley, V.V. Chari, Stephen Coate, and, especially, Pierre Yared for comments. We thank Georgy Egorov and Oleg Itskhoki for research assistance and the National Science Foundation for financial support. Golosov and Tsyvinski thank Einaudi Institute for Economics and Finance for hospitality.

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N2 - We study the dynamic taxation of capital and labor in the Ramsey model under the assumption that taxes and public good provision are decided by a self-interested politician who cannot commit to policies. We show that, as long as the politician is as patient as the citizens, the Chamley-Judd result of zero long-run taxes holds. In contrast, if the politician is less patient than the citizens, the best (subgame perfect) equilibrium from the viewpoint of the citizens involves long-run capital taxation.

AB - We study the dynamic taxation of capital and labor in the Ramsey model under the assumption that taxes and public good provision are decided by a self-interested politician who cannot commit to policies. We show that, as long as the politician is as patient as the citizens, the Chamley-Judd result of zero long-run taxes holds. In contrast, if the politician is less patient than the citizens, the best (subgame perfect) equilibrium from the viewpoint of the citizens involves long-run capital taxation.

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KW - Fiscal policy

KW - Political economy

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Political economy of Ramsey taxation

Abstract

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