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A Quantitative Analysis of Capital Income Taxation

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  • Imrohoroglu, Selahattin

Abstract

This paper studies the quantitative impact of eliminating capital income taxation on capital accumulation and steady-state welfare in a general equilibrium model with overlapping generations of sixty-five-period-lived individuals who face idiosyncratic earnings risk, borrowing constraints, and life-span uncertainty. Under a wide range of parameter configurations, the capital income tax rate that maximizes steady-state welfare is positive, even though eliminating it completely would raise the steady-state capital stock toward the Golden Rule. This is because the tax burden is shifted toward the younger and liquidity constrained years, reducing the individuals' ability to self-insure. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 39 (1998)
Issue (Month): 2 (May)
Pages: 307-28

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Handle: RePEc:ier:iecrev:v:39:y:1998:i:2:p:307-28

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Cited by:
  1. Cagri S. Kumru & Athanasios C. Thanopoulos, 2011. "Self-control Preferences and Taxation: A Quantitative Analysis in a Life Cycle Model," ANU Working Papers in Economics and Econometrics 2011-546, Australian National University, College of Business and Economics, School of Economics.
  2. Erosa, Andres & Gervais, Martin, 2002. "Optimal Taxation in Life-Cycle Economies," Journal of Economic Theory, Elsevier, vol. 105(2), pages 338-369, August.
  3. Cagri Seda Kumru & John Piggott, 2012. "Optimal Capital Income Taxation with Means-tested Benefits," CAMA Working Papers 2012-21, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Juergen Jung, 2008. "The Timing of Redistribution," Caepr Working Papers 2008-015, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  5. Marco Cozzi, 2012. "Risk Aversion Heterogeneity, Risky Jobs and Wealth Inequality," Working Papers 1286, Queen's University, Department of Economics.
  6. Xin Long & Alessandra Pelloni, 2012. "Welfare Improving Taxation on Savings in a Growth Model," CEIS Research Paper 218, Tor Vergata University, CEIS, revised 27 Jan 2012.
  7. Marco Cozzi, 2011. "Equilibrium Heterogeneous-Agent Models as Measurement Tools: some Monte Carlo Evidence," Working Papers 1277, Queen's University, Department of Economics.
  8. Kartik B. Athreya & Andrea L. Waddle, 2007. "Implications of some alternatives to capital income taxation," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 31-55.
  9. Césaire A. Meh & Yaz Terajima, 2009. "Uninsurable Investment Risks and Capital Income Taxation," Working Papers 09-3, Bank of Canada.
  10. Baltasar Manzano & Jesús Ruiz, 2002. "Política Fiscal Óptima: el estado de la Cuestión," Documentos del Instituto Complutense de Análisis Económico 0212, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.
  11. Ayse Imrohoroglu & Selahattin Imrohoroglu & Douglas H. Joines, 2000. "Time inconsistent preferences and Social Security," Discussion Paper / Institute for Empirical Macroeconomics 136, Federal Reserve Bank of Minneapolis.
  12. Juergen Jung & Chung Tran, 2008. "The Macroeconomics of Health Savings Accounts," Caepr Working Papers 2007-023, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.

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