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Optimal asymmetric sector-specific labour taxation in an overlapping generations model

  • Igor Fedotenkov
Article
  • 56 Downloads

Abstract

This paper presents a simple rule for optimal asymmetric labour taxation and subsidization in a two-sector model with logarithmic utilities and Cobb–Douglas production functions, linked to demographic factors: fertility rate and longevity. The paper shows that depending on whether the economy is dynamically efficient or inefficient, it may be optimal to tax or subsidize labour in the sectors. Under dynamic inefficiency, it is optimal to tax the investment-goods sector and a Pareto-improving tax reform is possible. Larger output elasticities of capital in the sectors reduce the possibilities of a Pareto-improving reform, while population ageing in terms of higher longevity enhances the possibilities of welfare improvement for all generations. Fertility rates do not affect optimal taxation. In appendix, we also address the cases of capital taxation/subsidisation and value-added taxes.

Keywords

Two sectors Factor mobility Asymmetric taxation Optimality Population ageing 

JEL Classification

E62 H21 J10 

Notes

Compliance with Ethical Standards

Conflict of Interest

The author declares that he has not received any grant, honoraria or financial support (apart from the official salary). The author declares that he has no conflict of interest.

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Copyright information

© Springer-Verlag GmbH Austria, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Institute for Industrial EconomicsRussian Presidential Academy of National Economy and Public Administration (RANEPA)MoscowRussia
  2. 2.Economics DepartmentBank of LithuaniaVilniusLithuania

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