This paper analytically derives the conditions under which the slope of the tax reaction function is negative in a classical tax competition model. If countries maximize welfare, we show that a negative slope (reflecting strategic substitutability) occurs under relatively mild conditions....

This paper analyzes optimal linear taxes on capital and labor incomes in a life-cyclemodel of human capital investment, financial savings, and labor supply with heteroge-nous individuals. A dual income tax with a positive marginal tax rate on not onlylabor income but also capital income is...

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...