Examples in Dynamic Optimal Taxation
One famous result in the theory of capital income taxation is that the optimal tax is zero in equilibrium (Chamley, Econometrica 54(3):607–622, 1986; Judd, J. Public Econ. 28:59–83, 1985) . This result has been derived as an open-loop Stackelberg solution to an appropriate differential game. In this paper, we consider specific feedback solutions to three dynamic models of taxation and find that the optimal tax is generally different from zero.
KeywordsCapital Income Differential Game Optimal Taxation Stackelberg Equilibrium Feedback Nash Equilibrium
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