Abstract
In a simple overlapping-generations model where the government has the power to levy commodity taxes and to implement generation-specific transfers, we show that the second-best optima are not first-best, that is, commodity taxes and subsidies are almost always part of the efficient solution. Provided that savings is positive, we also show that taxes on saving and on capital inputs are required for efficiency at almost all optima.
This research has been generously supported by the Social Science Research Council of Canada. Blackorby is grateful for the many conversations with Paul Beaudry and Francisco Gonzalez and a very productive lunch with Ivar Ekeland. We are particularly grateful to Sushama Murty.
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Blackorby, C., Brett, C. (2007). The Pareto-Optima of Finite-Horizon OLG Models. In: Färe, R., Grosskopf, S., Primont, D. (eds) Aggregation, Efficiency, and Measurement. Studies in Productivity and Efficiency. Springer, Boston, MA. https://doi.org/10.1007/978-0-387-47677-3_1
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