On the Optimal Taxation of Capital Income

116 JONES, MANUELLI, AND ROSSI
of labor and multi-sector settings in which the price of capital in the steady
state is endogenous.
Finally, the model in section 2 suggests that given the linearity assumption
and a rich tax code, the Ramsey problem has very strong implications
about both the timing of tax revenues and the structure of the tax system:
Under the optimal scheme, revenue is `front-loaded' and all factors are
treated symmetrically in the limit. This revenue front-loading is a disturbing
but essential feature of the optimal tax code. Reasonable restrictions on
the time path of deficits (e.g., period by period budget balance) can be
shown to undo the zero limiting tax result. In essence, this is another type
of restriction on tax codes not unlike that described in section 3 (b). This
example highlights the interdependence of the initial behavior of the
optimal tax code and its limiting properties.
Because of the delicacy of the mapping between the features of the
economy and the structure of optimal tax codes, further progress will
necessitate a detailed analysis of the entire time path of taxes as in section
3 (c). Even for relatively simple examples, this will require a reliance on
numerical methods.
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