NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Pareto Efficient Income Taxation with Stochastic Abilities

Marco Battaglini, Stephen Coate

NBER Working Paper No. 10119
Issued in November 2003
NBER Program(s):   PE

This paper studies Pareto efficient income taxation in an economy with infinitely-lived individuals whose income generating abilities evolve according to a two-state Markov process. The study yields two main results. First, when individuals are risk neutral, the fraction of individuals who face a positive marginal income tax rate is always positive but converges to zero. Moreover, the tax rate these individuals face also goes to zero. Second, Pareto efficient income tax systems can be time-consistent even when the degree of correlation in ability types is large.

download in pdf format
   (574 K)

email paper

This paper is available as PDF (574 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10119

Published: Battaglini, Marco & Coate, Stephen, 2008. "Pareto efficient income taxation with stochastic abilities," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 844-868, April.

Users who downloaded this paper also downloaded these:
Farhi and Werning w11408 Inequality, Social Discounting and Estate Taxation
Stiglitz w2189 Pareto Efficient and Optimal Taxation and the New New Welfare Economics
Stiglitz w0632 Self-Selection and Pareto Efficient Taxation
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us