Tirelli, Mario (2002): Income Taxation when Markets are Incomplete. Published in: Decisions in Economics and Finance , Vol. 26, No. 2003 (2003): pp. 97128.

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Abstract
We investigate the welfare effects of proportional income taxation in a standard general equilibrium model with incomplete markets (GEI). Formally, our analysis is on the allocative effects of statecontingent income tax reforms. Tax reforms are restricted to be anonymous, publicly and truthfully announced before markets open, and they are required to result in an expost constrained efficient allocation. Our main result is to show that there do typically exist contingent tax reforms that are Pareto improving. These reforms, acting directly on the asset span, modify private risk sharing opportunities. Thus, unlike most of the GEI literature, the type of policy transmission mechanism considered does not rely on, second order, relative spot prices effects. Yet, the key welfare effects of our tax reforms are substantially equivalent to those induced through changes in relative spot prices, as for example in GeanakoplosPolemarchakis (1986), Geanakoplos MagillQuinziiDrèze (1990), or in CitannaPolemarchakisTirelli (2001).
Item Type:  MPRA Paper 

Original Title:  Income Taxation when Markets are Incomplete 
Language:  English 
Keywords:  Incomplete Markets; Efficiency; Tax Reforms; Personal and Capital Income Taxes 
Subjects:  D  Microeconomics > D5  General Equilibrium and Disequilibrium > D52  Incomplete Markets H  Public Economics > H2  Taxation, Subsidies, and Revenue > H24  Personal Income and Other Nonbusiness Taxes and Subsidies H  Public Economics > H2  Taxation, Subsidies, and Revenue > H21  Efficiency; Optimal Taxation H  Public Economics > H2  Taxation, Subsidies, and Revenue > H25  Business Taxes and Subsidies 
Item ID:  746 
Depositing User:  Mario Tirelli 
Date Deposited:  09. Nov 2006 
Last Modified:  18. Feb 2013 00:17 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/746 