Optimal nonlinear income taxation with productive government expenditure |
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| Authors: | Ching-Chong Lai Chih-Hsing Liao |
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| Affiliation: | aInstitute of Economics, Academia Sinica, Taiwan;bDepartment of Economics, National Cheng Chi University, Taiwan;cInstitute of Economics, National Sun Yat-Sen University, Taiwan;dDepartment of Economics, Feng Chia University, Taiwan |
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| Abstract: | This paper develops an endogenous growth model with a production externality and nonlinear income taxation, and uses it to examine how the fiscal authority devises its nonlinear tax structure from the viewpoint of welfare maximization. It is found that, in the Barro (1990) model, Pareto optimality can be achieved if both policy instruments for the tax scalar and the extent of the tax progressivity/regressivity are set optimally. |
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| Keywords: | JEL classification: E62 H21 O41 |
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