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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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.
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Juergen Jung, 2008.
"The Timing of Redistribution,"
Caepr Working Papers
2008-015, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
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