Is there a majority to support a capital tax cut?

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Is there a majority to support a capital tax cut?

Author Info

François Gourio () (Boston University, Department of Economics)

Abstract

A capital income tax cut must in general be financed by increasing other taxes, and thus will have redistributive effects. This paper studies analytically the redistribution implied by a capital income tax cut in the Ramsey-Cass-Koopmans neoclassical growth model when agents differ in wealth and human capital and markets are frictionless. A few parameters a¤ect the efficiency benefits and redistributive costs of capital taxation, and determine the set of agents who are in favor of a capital income tax cut. For plausible parameter values, a majority would lose from the tax cut, i.e. high capital taxes may be politically sustainable.

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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number wp2008-001.

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Length: 25
Date of creation: Sep 2008
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Handle: RePEc:bos:wpaper:wp2008-001

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This paper has been announced in the following NEP Reports:

NEP-ALL-2009-06-10 (All new papers)
NEP-DGE-2009-06-10 (Dynamic General Equilibrium)
NEP-PBE-2009-06-10 (Public Economics)
NEP-PUB-2009-06-10 (Public Finance)

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Other versions:
- Juan Carlos Conesa & Sagiri Kitao & Dirk Krueger, 2007. "Taxing Capital? Not a Bad Idea After All!," NBER Working Papers 12880, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Other versions:
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