The Political Economy of Nonlinear Capital Taxation


Farhi, Emmanuel, and Ivan Werning. 2008. “The Political Economy of Nonlinear Capital Taxation”.
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We study efficient nonlinear taxation of labor and capital in a dynamic Mirrleesian model incorporating political economy constraints. Policies are chosen sequentially over time, without commitment, as the outcome of democratic elections. We study
the best equilibrium for this dynamic game. Our main result is that the marginal tax on capital income is progressive, in the sense that richer agents face higher marginal tax rates.

Last updated on 04/12/2013