Advanced Search
MyIDEAS: Login to save this paper or follow this series

Capital Income Taxation and the Sustainability of Permanent Primary Deficits

Contents:

Author Info

  • Uhlig, H.F.H.V.S.

    (Tilburg University, Center for Economic Research)

Abstract

If a government imposes a tax on capital income, it may, as a result, lower the private rate of return on capital below the growth rate of an economy, thereby giving rise to the possibility of running a permanent deficit. Since, however, the before-tax rate of return and not the after-tax rate of return is relevant for judging the dynamical efficiency of the economy, the possibility of a permanent deficit does not by itself imply a possibility for a Pareto-improving redistribution of income. To examine this issue "step by step", we examine in general whether a government can run a deficit forever by rolling over its debt. Assuming the government to run a deficit in each period equal to a constant fraction of total output, we study several overlapping generations models, proceeding from endowment economies to neoclassical growth with a variable capital stock. We then introduce capital income taxation and show, for example, that permanent defcits are feasible in the case of a variable capital stock, provided the capital income tax is sufficiently high. We examine the welfare effects and discuss policy consequences.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://arno.uvt.nl/show.cgi?fid=3529
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Richard Broekman)
Download Restriction: no

Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1997-11.

as in new window
Length:
Date of creation: 1997
Date of revision:
Handle: RePEc:dgr:kubcen:199711

Contact details of provider:
Web page: http://center.uvt.nl

Related research

Keywords: income tax; deficit spending;

References

References listed on IDEAS
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.:
as in new window
  1. Vickrey, William, 1992. "Meaningfully Defining Deficits and Debt," American Economic Review, American Economic Association, vol. 82(2), pages 305-10, May.
  2. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  3. Lans Bovenberg & Carel Petersen, 1992. "Public debt and pension policy," Fiscal Studies, Institute for Fiscal Studies, vol. 13(3), pages 1-14, August.
  4. Eisner, Robert, 1992. "Deficits: Which, How Much, and So What?," American Economic Review, American Economic Association, vol. 82(2), pages 295-98, May.
  5. Buiter, Willem H & Patel, U, 1990. "Debt, Deficits and Inflation: An Application to the Public Finance of India," CEPR Discussion Papers 408, C.E.P.R. Discussion Papers.
  6. Martin Eichenbaum & Neil Wallace, 1985. "A shred of evidence on public acceptance of privately issued currency," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win.
  7. Abel, Andrew B, et al, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," Review of Economic Studies, Wiley Blackwell, vol. 56(1), pages 1-19, January.
  8. Uhlig, Harald & Yanagawa, Noriyuki, 1996. "Increasing the capital income tax may lead to faster growth," European Economic Review, Elsevier, vol. 40(8), pages 1521-1540, November.
  9. Buiter, Willem H & Kletzer, Kenneth M, 1992. "Who's Afraid of the Public Debt?," American Economic Review, American Economic Association, vol. 82(2), pages 290-94, May.
  10. Broer, D Peter & Westerhout, Ed W M T & Bovenberg, A Lans, 1994. " Taxation, Pensions and Saving in a Small Open Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(3), pages 403-24.
  11. Balasko, Yves & Shell, Karl, 1980. "The overlapping-generations model, I: The case of pure exchange without money," Journal of Economic Theory, Elsevier, vol. 23(3), pages 281-306, December.
  12. Buiter, Willem H, 1993. "Public Debt in the USA: How Much, How Bad and Who Pays?," CEPR Discussion Papers 791, C.E.P.R. Discussion Papers.
  13. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
  14. V.V. Chari, 1988. "Time consistency and optimal policy design," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 17-31.
  15. Cass, David, 1972. "On capital overaccumulation in the aggregative, neoclassical model of economic growth: A complete characterization," Journal of Economic Theory, Elsevier, vol. 4(2), pages 200-223, April.
  16. Bovenberg, A.L., 1992. "Residence- and source-based taxation of capital income in an overlapping generations model," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152976, Tilburg University.
  17. S. Rao Aiyagari, 1985. "Deficits, interest rates, and the tax distribution," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win.
  18. Bohn, Henning, 1995. "The Sustainability of Budget Deficits in a Stochastic Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 257-71, February.
  19. Friedman, Benjamin M, 1992. "Learning from the Reagan Deficits," American Economic Review, American Economic Association, vol. 82(2), pages 299-304, May.
  20. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1994. "Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 73-94, Winter.
  21. Paul Krugman, 1997. "The Age of Diminished Expectations, 3rd Edition: U.S. Economic Policy in the 1990s," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611341, December.
  22. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  23. Willem H. Buiter & K.M. Kletzer, 1994. "Ponzi Finance, Government Solvency and the Redundancy or Usefulness of Public Debt," Cowles Foundation Discussion Papers 1070, Cowles Foundation for Research in Economics, Yale University.
  24. Benjamin M. Friedman, 1992. "Learning From the Reagan Deficits," NBER Working Papers 4022, National Bureau of Economic Research, Inc.
  25. Atkinson, A B & Sandmo, A, 1980. "Welfare Implications of the Taxation of Savings," Economic Journal, Royal Economic Society, vol. 90(359), pages 529-49, September.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. de la Croix, D. & Michel, P., 1999. "National Debt Sustainability and the Dynamics in the Economy of Diamond," G.R.E.Q.A.M. 99a56, Universite Aix-Marseille III.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:dgr:kubcen:199711. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard Broekman).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.