Optimal tax mixes

Sammanfattning: The three self-contained papers and the note that constitute this thesis analyze the structure of optimal tax mixes in a general-equilibrium economy of heterogeneous individuals incorporating the issue of optimal provision of a pure public good in the last two papers. Paper I deals with the topics in an atemporal model of two individuals differing in their innate production abilities for different policy objectives using a Cobb-Douglas utility function. In addition to deriving explicit solutions of optimal tax mixes, it is shown that, in optimum, the relationship between the two non-lump-sum tax rates measures the efficiency of the tax system, while the ratio of the lump-sum tax to the after-tax average full income measures the equity of system. In Paper II, intertemporal aspects of the topics are analyzed in an overlapping-generations model of two-period-lived individuals differing in tastes and innate production abilities. The government is allowed to run a deficit financed by issuing bonds. Assuming a Cobb-Douglas utility function and a utilitarian social welfare function, steady-state levels of optimal tax mixes are explicitly derived using the principle of optimality of dynamic programming. The last two papers deal with the simultaneous determination of the optimal tax mixes and the provision of a pure public good. Paper III is a critical comment on an article published in the American Economic Review. In addition to making some critical remarks on the setup of the analysis, the note shows that there is no basis for arguing, even for distributionally neutral public goods, that the second-best level of optimal public good provision typically exceeds the first best level. Paper IV examines implications of various combinations of policy objectives and feasible forms of lump-sum taxes for optimal tax mixes and public good provision using a CES utility function. It is shown that there exist multiple first-best optima with differing public good levels. With a distributional policy objective and with only a uniform lump-sum tax feasible, the second-best level of public good provision can be higher than the first-best level for a certain range of complementarity between