Optimal taxation and intergovernmental transfer

　　In this paper, we study the optimal choices of the federal income tax, federal
transfers, and local taxes in a dynamic model of capital accumulation and with explicit
gamestructure s among multipleprivateage nts, multiplelocal governments, and the
federal government. In general, the optimal local property tax is zero if the local
property tax is constrained to be nonnegative, whereas the optimal local consumption
tax is always positive. When the local consumption tax is chosen optimally, the
federal income tax can be either positive or negative. For most reasonable parameter
values, our numerical calculations have shown that with a positive local consumption
tax there exists a reverse transfer from local governments to the federal government.