Optimal Dynamic Taxation.

This paper reviews the recent optimal dynamic tax literature, and links the results from dynastic one-person economies, dynastic heterogeneous individual economies and overlapping generations economies. The paper shows that the second best labour tax is positive, and further analyses the dynamic path of capital and labour taxes, as well as he economy's adjustment under the optimal programme. Furthermore, we prove that in a heterogeneous individual economy, every individual's most prefereed capital tax in steady state is zero. The optimal labour tax in a heterogeneous individual framework is similar to the optimal labour tax in a one -person economy.