Optimal Intertemporal Taxation and the Public Debt
The optimal taxation problem is analyzed in a general equilibrium model of optimal growth. The private sector is represented by a single competitive household endowed with perfect foresight, and an inﬁnite life. This household maximizes an intertemporal stationary utility function. Public consumption is ﬁnanced by taxes on consumption, labor income and capital income (or wealth), or by borrowing. Diﬀerent policies (ﬁrst-best and second-best), are analyzed for various subsets of instruments. The problem of the optimal level of the public debt is also considered. The general conclusion supports the relative eﬀiciency of the consumption tax with respect to the other instruments.
Chamley, Christophe, "Optimal Intertemporal Taxation and the Public Debt" (1980). Cowles Foundation Discussion Papers. 790.