OPTIMAL FISCAL AND PUBLIC-EXPENDITURE POLICY IN A 2-CLASS ECONOMY

Citation
M. Nava et al., OPTIMAL FISCAL AND PUBLIC-EXPENDITURE POLICY IN A 2-CLASS ECONOMY, Journal of public economics, 61(1), 1996, pp. 119-137
Citations number
17
Categorie Soggetti
Economics
Journal title
ISSN journal
00472727
Volume
61
Issue
1
Year of publication
1996
Pages
119 - 137
Database
ISI
SICI code
0047-2727(1996)61:1<119:OFAPPI>2.0.ZU;2-Q
Abstract
The paper deals with optimal taxation and the provision of public good s in a two-class economy with non-linear income and linear commodity t axes. As far as optimal taxation is concerned, we first show that with two private goods the good complementary with leisure should be taxed more heavily. Secondly, the standard income tax rules are shown to be augmented by considerations for offsetting the distortions created on the commodity markets. As to the provision of public goods we extend recent results for a two-class economy with public funds raised entire ly by means of a non-linear income tax system. The standard Samuelson rule is modified by two additional terms related to the self-selection constraint and to the revenue of indirect taxes. They are both shown to vanish when the agents' utility functions are weakly separable betw een public and private goods (taken together) and leisure.