A NOTE ON OPTIMAL CAPITAL TAXATION WITH PREFERENCE EXTERNALITIES

2018 ◽  
Vol 24 (3) ◽  
pp. 729-746 ◽  
Author(s):  
Cheng-Wei Chang ◽  
Ching-Chong Lai
Keyword(s):  
The United States ◽  
Income Taxes ◽  
Income Taxation ◽  
Capital Taxation ◽  
Neoclassical Growth Model ◽  
Factor Income ◽  
Status Seeking ◽  
Capital Tax ◽  
Optimal Capital ◽  
Neoclassical Growth

This paper extends the Chamley–Judd framework by introducing preference externalities in a neoclassical growth model, and finds that the optimal capital tax increases with the extent of social-status seeking or negative leisure externalities. Furthermore, this paper finds that differences in leisure externalities lead to a distinct impact on optimal factor income taxes, and hence may serve as a plausible vehicle to explain the empirical differences in factor income taxation in the United States and Europe.

ENTREPRENEURIAL LABOR AND CAPITAL TAXATION

2010 ◽  
Vol 15 (3) ◽  
pp. 326-335 ◽  
Author(s):  
Catarina Reis
Keyword(s):  
Income Taxes ◽  
Income Taxation ◽  
Labor Income ◽  
Capital Taxation ◽  
Capital Income ◽  
Capital Income Taxation ◽  
Optimal Tax ◽  
Long Run ◽  
Capital Tax ◽  
The Government

This paper considers a Ramsey model of linear taxation for an economy with capital and two kinds of labor. If the government cannot distinguish between the return from capital and the return from entrepreneurial labor, then there will be positive capital income taxation, even in the long run. This happens because the only way to tax entrepreneurial labor is by also taxing capital. Furthermore, under fairly general conditions, the optimal tax on observable labor income is higher than the capital tax, although both are strictly positive. Thus, even though both income taxes are positive, imposing uniform income taxation would lead to additional distortions in the economy.

A NOTE ON TARIFF POLICY, INCREASING RETURNS, AND ENDOGENOUS FLUCTUATIONS

2009 ◽  
Vol 15 (2) ◽  
pp. 279-291 ◽  
Author(s):  
Yan Chen ◽  
Yan Zhang
Keyword(s):  
Returns To Scale ◽  
Income Taxes ◽  
Increasing Returns ◽  
Closed Economy ◽  
Macroeconomic Dynamics ◽  
Neoclassical Growth Model ◽  
Endogenous Fluctuations ◽  
Model Dynamics ◽  
Capital Tax ◽  
Neoclassical Growth

We show that the introduction of a constant tariff or subsidy levied on foreign energy can lead to a rich set of endogenous fluctuations around the unique steady state, including stable 2-, 4-, 8-, and 15-cycles, quasiperiodic orbits, and chaos. This is demonstrated in a standard neoclassical growth model with social increasing returns to scale. Numerical exercises could be viewed from a methodological perspective as illustrating that capital income taxes and tariffs are equivalent in generating endogenous fluctuations because Guo and Lansing [Guo, J.T. and K.J. Lansing (2002) Fiscal policy, increasing returns and endogenous fluctuations. Macroeconomic Dynamics 6, 633–664] show that a constant capital tax or subsidy has the same effect on the model dynamics in a one-sector closed economy.

Scandinavian Local Income Taxation: Lessons for the United States?

1977 ◽  
Vol 5 (4) ◽  
pp. 471-488 ◽  
Author(s):  
Steven D. Gold
Keyword(s):  
United States ◽  
The United States ◽  
National Government ◽  
Institutional Arrangements ◽  
Income Taxes ◽  
Income Taxation ◽  
Local Autonomy ◽  
Tax Base ◽  
Fiscal Disparities

This paper describes and analyzes the experiences of Norway. Sweden and Denmark with local income taxation in order to test the validity of comments made by numerous American economists about such taxes. Although local income taxes are their major source of locally raised revenue, it appears that the problems of revenue instability and tax base mobility are not serious in these countries. Fiscal disparities have been greatly reduced through consolidation of government units and heavy reliance on transfers from the national government, and these institutional arrangements may have reduced local autonomy in some important respects. The heavy reliance on income taxes by all levels of government is one reason for the extremely high marginal tax rales to which most workers are subject.

NONLINEARITY, CYCLICITY, AND PERSISTENCE IN CONSUMPTION AND INCOME RELATIONSHIPS: RESEARCH IN HONOR OF MELVIN J. HINICH

2012 ◽  
Vol 16 (S3) ◽  
pp. 376-393 ◽  
Author(s):  
Fredj Jawadi ◽  
Patrick Leoni
Keyword(s):  
United States ◽  
The United States ◽  
Income Growth ◽  
Nonlinear Relationship ◽  
Consumption Growth ◽  
Neoclassical Growth Model ◽  
Aggregate Consumption ◽  
The Relationship ◽  
Robust Evidence ◽  
Neoclassical Growth

This paper is dedicated to the memory of the great statistician Melvin J. Hinich, with whom we were in contact about this research prior to his untimely death from a tragic fall. We develop a neoclassical growth model with habit formation to exhibit an equilibrium nonlinear relationship between aggregate consumption growth and income growth. We first provide empirical evidence consistent with this relationship both for the United States and France, and we reject the hypothesis of a random walk for consumption. We then estimate this nonlinear relationship. We find for both countries robust evidence of persistence, nonlinearity, and cyclicity in the relationship between consumption and income.

scholarly journals Balanced Growth Despite Uzawa

2017 ◽  
Vol 107 (4) ◽  
pp. 1293-1312 ◽  
Author(s):  
Gene M. Grossman ◽  
Elhanan Helpman ◽  
Ezra Oberfield ◽  
Thomas Sampson
Keyword(s):  
Capital Accumulation ◽  
Technological Progress ◽  
The United States ◽  
Investment Good ◽  
Growth Theorem ◽  
Neoclassical Growth Model ◽  
Balanced Growth ◽  
Balanced Growth Path ◽  
Endogenous Schooling ◽  
Neoclassical Growth

The evidence for the United States points to balanced growth despite falling investment-good prices and a less-than-unitary elasticity of substitution between capital and labor. This is inconsistent with the Uzawa Growth Theorem. We extend Uzawa's theorem to show that the introduction of human capital accumulation in the standard way does not resolve the puzzle. However, balanced growth is possible if education is endogenous and capital is more complementary with schooling than with raw labor. We present a class of aggregate production functions for which a neoclassical growth model with capital-augmenting technological progress and endogenous schooling converges to a balanced growth path. (JEL E22, E24, I26, J24, O33, O41, O47)

scholarly journals Optimal capital taxation in an economy with innovation-driven growth

2021 ◽  
pp. 1-34
Author(s):  
Ping-Ho Chen ◽  
Angus C. Chu ◽  
Hsun Chu ◽  
Ching-Chong Lai
Keyword(s):  
Growth Model ◽  
Creative Destruction ◽  
Capital Taxation ◽  
Tax Rate ◽  
Us Economy ◽  
The Us ◽  
Capital Tax ◽  
Optimal Capital

Abstract This paper investigates optimal capital taxation in an innovation-driven growth model. We examine how the optimal capital tax rate varies with externalities associated with R&D and innovation. Our results show that the optimal capital tax rate is higher when (i) the “stepping on toes effect” is smaller, (ii) the “standing on shoulders effect” is stronger, or (iii) the extent of creative destruction is smaller. The optimal capital tax rate is more likely to be positive when there is underinvestment in R&D. Moreover, the optimal capital tax rate and the monopolistic markup exhibit an inverted-U relationship. By calibrating our model to the US economy, we find that the optimal capital tax rate is positive, at a rate of around 6.6%. Finally, we consider a number of extensions and find that the result of a positive optimal capital tax is robust.

AN EVALUATION OF CONSTITUTIONAL CONSTRAINTS ON CAPITAL TAXATION

2016 ◽  
Vol 21 (7) ◽  
pp. 1519-1544 ◽  
Author(s):  
Begoña Domínguez ◽  
Zhigang Feng
Keyword(s):  
Incentive Compatibility ◽  
Income Taxes ◽  
Limited Commitment ◽  
Labor Income ◽  
Tax Rates ◽  
Capital Taxation ◽  
Capital Tax ◽  
Constitutional Constraints ◽  
Compatibility Constraint ◽  
Sustainable Equilibrium

This paper investigates the desirability of constitutional constraints on capital taxation in an environment without government debt and where benevolent governments have limited commitment. In our setup, governments can choose proportional capital and labor income taxes subject to the constitutional constraint but cannot commit to an actual path of taxes. First, we explore a form of constitutional constraint: a constant cap on capital tax rates. In our quantitative exercise, we show that a three percent cap on capital taxes provides the highest welfare at the worst sustainable equilibrium. However, such a cap decreases welfare at the best sustainable equilibrium (both because it constrains feasibility and because it tightens the incentive compatibility constraint). Second, we identify a form of constitutional constraint that can improve all sustainable equilibria. That constraint features a cap on capital taxes that increases with the level of capital.

scholarly journals Demographics and the Politics of Capital Taxation in a Life-Cycle Economy

2010 ◽  
Vol 100 (1) ◽  
pp. 337-363 ◽  
Author(s):  
Xavier Mateos-Planas
Keyword(s):  
Overlapping Generations ◽  
The United States ◽  
Tax Rates ◽  
Capital Taxation ◽  
Overlapping Generations Model ◽  
Tax Rate ◽  
Cycle Economy ◽  
Voting Age ◽  
Capital Tax ◽  
Markov Equilibrium

This article studies the effects of demographics on the mix of tax rates on labor and capital. It uses a quantitative general-equilibrium, overlapping-generations model where tax rates are voted without past commitments in every period and characterized as a Markov equilibrium. In the United States, the younger voting-age population in 1990 compared to 1965 accounts for the observed decline in the relative capital tax rate between those two years. A younger population raises the net return to capital, leads voters to increase their savings, and results in a preference for lower taxes on capital. Conversely, aging might increase capital taxation. (JEL E13, H24, H25, J11)

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