Optimal nonlinear income taxation with productive government expenditure |
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| Authors: | Ching-Chong Lai Chih-Hsing Liao |
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| Affiliation: | 1. Department of Economics, National Cheng Chi University, Taiwan, ROC;2. Institute of Economics, Academia Sinica, Taiwan, ROC;3. Institute of Economics, National Sun Yat-Sen University, Taiwan, ROC;4. Department of Economics, Tunghai University, Taiwan, ROC |
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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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