Journal of Political Economy Vol. 116 No. 1 2008
On the Optimality of the Friedman Rule with Heterogeneous Agents and Nonlinear Income Taxation
Abstract
We study the optimal inflation tax in an economy with heterogeneous agents subject to nonlinear taxation of labor income. We find that the Friedman rule is Pareto efficient when combined with a nondecreasing labor income tax. In addition, the optimum for a utilitarian social welfare function lies on this region of the Pareto frontier. The welfare costs from inflation are bounded below by the area under the demand curve.
- DOI
- 10.1086/529397
- Volume
- 116
- Issue
- 1
- Pages
- 82-112
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref