Why is it optimal not to tax capital income in the long-run in Chamley (1986) and Judd (1985)? This paper demonstrates that the answer follows standard intuitions from the commodity tax literature. In the steady state, Engel curves for consumption are linear in labour earnings, irrespective of...

We develop models of optimal linear and non-linear income taxation with endogenous human capital formation to explore optimal education subsidies. Optimal subsidies on education ensure efficiency in human capital accumulation and thus play an important role in alleviating the tax distortions on...