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Determining the motives for a positive optimal tax on capital

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  • Peterman, William B.

Abstract

Previous literature demonstrates that in a standard life cycle model the optimal tax on capital is large. This paper highlights that after changing two assumptions in the standard model the optimal tax drops by almost half. First, the utility function is altered such that it implies that an agent's Frisch labor supply elasticity is constant over his lifetime. Second, the government is allowed to tax accidental bequests and ordinary capital income at separate rates. Quantifying the effect of these assumptions is important because the first has limited empirical evidence and the second confounds a motive for taxing capital and accidental bequests.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 1 ()
Pages: 265-295

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:1:p:265-295

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Web page: http://www.elsevier.com/locate/jedc

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Keywords: Optimal taxation; Capital taxation;

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References

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Cited by:
  1. Cassou, Steven P. & Gorostiaga, Arantza & Uribe-Zubiaga, Iker, 2013. "Policy effects of the elasticity of substitution across labor types in life cycle models," Economic Modelling, Elsevier, vol. 35(C), pages 59-70.
  2. William B. Peterman, 2012. "An extensive look at taxes: how does endogenous retirement affect optimal taxation?," Finance and Economics Discussion Series 2012-28, Board of Governors of the Federal Reserve System (U.S.).
  3. Peterman, William B., 2013. "Determining the motives for a positive optimal tax on capital," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 265-295.
  4. William B. Peterman, 2012. "The effect of endogenous human capital accumulation on optimal taxation," Finance and Economics Discussion Series 2012-03, Board of Governors of the Federal Reserve System (U.S.).

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