Working Paper 244

Optimal Income Tax in a Monetary Economy

Preston J. Miller | Former Vice President and Monetary Adviser

Revised October 1, 1984

This study examines the shape of an optimal income tax schedule in a monetary economy. In equilibrium, money’s role is to allocate resources across generations, while a tax-transfer scheme serves as a form of social insurance. It is found that the optimal real income tax with money can be progressive.

Published In: Journal of Economic Dynamics and Control (Vol. 17, No. 3, May 1993, pp. 443-465)

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