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Optimal fiscal policy with social status and productive government expenditure

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  • Seiya Fujisaki

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    (Department of Education, Shinshu University)

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    Abstract

    We examine the optimal tax rule in an endogenous growth model with public capital and wealth-enhanced social status. When government expenditure is productive, the equality of marginal productivities of private and public capital holds. Wealth-induced preference can violate this equality, since the marginal utility from private capital is also a value of private capital. We obtain the optimal fiscal policy in which the positive income tax rate is higher than the subsidy rate for saving but is lower than the tax rate in the case without social-status preference.

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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I1-P91.pdf
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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 32 (2012)
    Issue (Month): 1 ()
    Pages: 960-968

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    Handle: RePEc:ebl:ecbull:eb-11-00734

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    Related research

    Keywords: social-status preference; productive government expenditure; the optimal tax rate;

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    1. G Mez, Manuel A., 2004. "Optimal Fiscal Policy In A Growing Economy With Public Capital," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 8(04), pages 419-435, September.
    2. Hung‐Ju Chen & Jang‐Ting Guo, 2011. "Money, Social Status And Endogenous Growth In A Generalized Cash‐In‐Advance Model," Pacific Economic Review, Wiley Blackwell, Wiley Blackwell, vol. 16(3), pages 267-284, 08.
    3. T. Tamai, 2008. "Optimal fiscal policy in an endogenous growth model with public capital: a note," Journal of Economics, Springer, Springer, vol. 93(1), pages 81-93, February.
    4. Christiane Clemens, 2004. "Status, Risk-Taking and Intertemporal Substitution in an Endogenous Growth Model," Journal of Economics, Springer, Springer, vol. 83(2), pages 103-123, November.
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