The Friedman rule in an overlapping-generations model with nonlinear taxation and income misreporting

Abstract

This paper models an overlapping-generations economy that includes money and is populated with individuals of di¤erent skills. They face a nonlinear income tax schedule and can engage in tax evasion. Money serves two purposes: the traditional one, modeled through a money-in-the-utility-function, and to facilitate tax evasion. It shows that income tax evasion leads to the violation of the Friedman rule that will otherwise hold.JEL classi…cation: H21; E52.

Capital income taxation and the Atkinson–Stiglitz theorem

“…But the same result is obtained also if s h`< s`. This is due to the fact that r h`> r`=) c h2 > c2; 8 with c 2 = [1 + r (1 )] s, the last inequality implies that…”

“…Interest income taxation can then be 7 Restricting attention to the so called "normal" case when the direction of redistribution goes from the high-skilled to the low-skilled agents, we can safely disregard the self-selection constraint requiring low-skilled agents not to mimic high-skilled agents. 8 A high skilled behaving as a mimicker and a low-skilled agent both choose the bundle (I`; B`) intended by the government only for the latter. For a given value of B`, a higher r implies substitution and income e¤ects that both push towards increasing second-period consumption.…”

Optimal Taxes under Private Information: The Role of Inflation

“…In addition to the private information problem, our environment has also agents that are anonymous and face limited commitment in frictional markets. 14 As a result, the only way agents trade in these markets is if fiat money is exchanged for goods. In contrast to da Costa and Werning (2008) and Gahvaria and Micheletto (2014), money in our environment is a pure fiat object and plays three different roles.…”

Wage endogeneity, tax evasion, and optimal nonlinear income taxation

“…We characterize the optimal amount that the government should spend on deterrence and discuss how this changes our earlier results under a passive government. Numerical exercises show that optimally spending resources to deter evasion strengthens the 3 See, for example, Mayshar (1991), Boadway, Marchand, and Pestieau (1994), Kopczuk (2001), Slemrod (2001), Christiansen and Tuomala (2008), Chetty (2009), Gahvari and Micheletto (2014), and Blomquist, Christiansen, and Micheletto (2016). redistributive potential of taxation by allowing the government to rely further on the generalequilibrium effects on wages for redistribution.…”