Second-Best Optimal Taxation of Capital and Labor in a Developing Economy

This paper examines how the tax burden in a developing economy should be distributed between capital income and labor income. We study a two-sector model, where the traditional sector is "informal" and consequently cannot be taxed by the government. In this set up, we find that the optimal (second-best) tax structure in order to raise a certain amount of revenue requires to tax capital income at least as much as labor income, and possibly more.

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Year of publication:	2003-05
Authors:	Penalosa, Cecilia Garcia ; Turnovsky, Stephen J.
Institutions:	Groupement de Recherche en Économie Quantitative d'Aix-Marseille (GREQAM), Aix-Marseille School of Economics (AMSE)
Subject:	endogenous growth \| optimal taxation \| informal sector \| developing economies

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Extent:	application/pdf
Series:	IDEP Working Papers.
Type of publication:	Book / Working Paper
Notes:	Number 0307 35 pages
Classification:	E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation ; O17 - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements ; O23 - Fiscal and Monetary Policy in Development
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005476201