Increasing the capital income tax may lead to faster growth
Identifieur interne : 000891 ( Main/Exploration ); précédent : 000890; suivant : 000892Increasing the capital income tax may lead to faster growth
Auteurs : Harald Uhlig [Pays-Bas] ; Noriyuki Yanagawa [Pays-Bas, Japon]Source :
- European Economic Review [ 0014-2921 ] ; 1996.
English descriptors
- Teeft :
- Agents supply, Aggregate savings, Auerbach, Benchmark case, Capital gains, Capital income, Capital income taxation, Capital income taxes, Capital market, Capital stock, Cast doubt, College scholarship rules, Constant intertemporal elasticity, Consumption goods, Conventional wisdom, Disposable income, Elasticity, Empirical support, Endogenous, Endogenous growth, Endogenous growth model, Endowment, Equal unity, Feldstein, First period, First table, Fiscal policy, Gene grossman, Generations economy, Generations model, Grandfather clause, Growth effects, Growth factor, Growth rate, Higher capital income, Higher growth rate, Higher savings, Initial capital, Interest elasticity, Interest factor, Interest factor elasticity, Interest rate, Interest rates, Intertemporal elasticity, Labor income, Labor supply, Lower labor income, Marginal change, Marginal effect, More income, More taxes, Multiple periods, Negative effect, Negative impact, Optimal taxation, Personal savings, Personal savings rate, Political economy, Positive effect, Present consumption, Quarterly journal, Rodolfo manuelli, Savings decisions, Savings function, Several estimates, Steady state, Substitution, Substitution utility function, Tilburg university, Time endowment, Time series evidence, Uhlig, Utility function, Yanagawa, Yanagawa european, Yearly interest factor, Yearly interest rate.
Abstract
Abstract: According to conventional economic wisdom, capital income taxes should be low. The purpose of this paper is to cast doubt on this general conclusion and to show that theory can also point in the opposite direction. The paper shows that under rather mild conditions, higher capital income taxes lead to faster growth in an overlapping generations economy with endogeneous growth. Government expenditures are fixed as a fraction of GNP and are financed with labor income taxes as well as capital income taxes. Since capital income accrues to the old, taxing it reliefs the tax burden on the young and leaves them with more income out of which to save. The net effect on savings is positive, if the interest elasticity of savings is sufficiently low, which it seems to be according to several estimates found in the literature. The basic argument is not seriously challenged by a grandfather clause for initial capital or by the old receiving some labor income as well. Extending the model to allow for multiple periods of lives, however, can overturn our results and support the conventional wisdom instead.
Url:
DOI: 10.1016/0014-2921(96)00032-3
Affiliations:
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Le document en format XML
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<front><div type="abstract" xml:lang="en">Abstract: According to conventional economic wisdom, capital income taxes should be low. The purpose of this paper is to cast doubt on this general conclusion and to show that theory can also point in the opposite direction. The paper shows that under rather mild conditions, higher capital income taxes lead to faster growth in an overlapping generations economy with endogeneous growth. Government expenditures are fixed as a fraction of GNP and are financed with labor income taxes as well as capital income taxes. Since capital income accrues to the old, taxing it reliefs the tax burden on the young and leaves them with more income out of which to save. The net effect on savings is positive, if the interest elasticity of savings is sufficiently low, which it seems to be according to several estimates found in the literature. The basic argument is not seriously challenged by a grandfather clause for initial capital or by the old receiving some labor income as well. Extending the model to allow for multiple periods of lives, however, can overturn our results and support the conventional wisdom instead.</div>
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