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Non-linear Capital Taxation Without Commitment

Review of Economic Studies 2012 79(4), 1469-1493 open access
We study efficient non-linear taxation of labour and capital in a dynamic Mirrleesian model incorporating political economy constraints. Policies are chosen sequentially over time, without commitment. Our main result is that the marginal tax on capital income is progressive, in the sense that richer agents face higher marginal tax rates.