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Organizational Capital and Optimal Ramsey Taxation

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  • Alok Johri
  • Bidyut Kumar Talukdar

Abstract

Many recent studies have argued that it is useful to introduce a third input into the neoclassical production technology which encapsulates the productivity enhancing knowledge created in the process of production. This input, often called organizational capital, has been shown to improve the predictions of dynamic general equilibrium models, especially at the business cycle frequency. In this paper, we study the impact of organizational capital on optimal capital taxation in the Ramsey tradition and fi nd that the planner would choose to tax capital income in the presence of organizational capital even in environments where earlier models predicted zero taxes or even subsidies.

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File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2011-09.pdf
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Bibliographic Info

Paper provided by McMaster University in its series Department of Economics Working Papers with number 2011-09.

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Length: 24 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:mcm:deptwp:2011-09

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Keywords: optimal taxation; Ramsey model; learning-by-doing; organizational capital;

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References

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  1. Alok Johri & Marc-Andre Letendre & Daqing Luo, 2011. "Organizational Capital and the International Co-movement of Investment," Department of Economics Working Papers 2011-03, McMaster University.
  2. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function," NBER Technical Working Papers 0282, National Bureau of Economic Research, Inc.
  3. Larry E. Jones & Rodolfo E. Manuelli & Peter E. Rossi, 1993. "On the Optimal Taxation of Capital Income," NBER Working Papers 4525, National Bureau of Economic Research, Inc.
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  7. R Cooper & Alok Johri, 2000. "Learning by Doing and Aggregate Fluctuations," Department of Economics Working Papers 2000-02, McMaster University.
  8. Christopher Gunn & Alok Johri, 2011. "News and knowledge capital," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 92-101, January.
  9. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-61, June.
  10. Yongsung Chang & Joao Gomes & Frank Schorfheide, 2002. "Learning by Doing as a Propagation Mechanism," Macroeconomics 0204002, EconWPA.
  11. Erosa, Andres & Gervais, Martin, 2002. "Optimal Taxation in Life-Cycle Economies," Journal of Economic Theory, Elsevier, vol. 105(2), pages 338-369, August.
  12. Adnrew J. Clarke & Alok Johri, 2008. "Pro-cyclical Solow Residuals without Technology Shocks," Department of Economics Working Papers 2008-02, McMaster University.
  13. Kenneth L. Judd, 1982. "Redistributive Taxation in a Simple Perfect Foresight Model," Discussion Papers 572, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. Hubbard, R Glenn & Judd, Kenneth L, 1987. "Social Security and Individual Welfare: Precautionary Saving, Borrowing Constraints, and the Payroll Tax," American Economic Review, American Economic Association, vol. 77(4), pages 630-46, September.
  15. Ellen R. McGrattan & Edward C. Prescott, 2005. "Taxes, Regulations, and the Value of U.S. and U.K. Corporations," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 767-796.
  16. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Staff Report 102, Federal Reserve Bank of Minneapolis.
  17. Debreu,Gerard Introduction by-Name:Hildenbrand,Werner, 1986. "Mathematical Economics," Cambridge Books, Cambridge University Press, number 9780521335614, April.
  18. Eric D. Darr & Linda Argote & Dennis Epple, 1995. "The Acquisition, Transfer, and Depreciation of Knowledge in Service Organizations: Productivity in Franchises," Management Science, INFORMS, vol. 41(11), pages 1750-1762, November.
  19. Andrew Atkeson & Patrick J. Kehoe, 2005. "Modeling and Measuring Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1026-1053, October.
  20. Kenneth L. Judd, 2002. "Capital-Income Taxation with Imperfect Competition," American Economic Review, American Economic Association, vol. 92(2), pages 417-421, May.
  21. Alok Johri & Amartya Lahiri, 2006. "Persistent Real Exchange Rates," 2006 Meeting Papers 281, Society for Economic Dynamics.
  22. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
  23. Alok Johri, 2009. "Online Appendix to "Delivering endogenous inertia in prices and output"," Technical Appendices 07-131, Review of Economic Dynamics.
  24. Linda Argote & Sara L. Beckman & Dennis Epple, 1990. "The Persistence and Transfer of Learning in Industrial Settings," Management Science, INFORMS, vol. 36(2), pages 140-154, February.
  25. Yvette Alvarez & John Burbidge & Ted Farrell & Leigh Palmer, 1992. "Optimal Taxation in a Life-Cycle Model," Canadian Journal of Economics, Canadian Economics Association, vol. 25(1), pages 111-22, February.
  26. Alok Johri, 2007. "Delivering Endogenous Inertia in Prices and Output," Department of Economics Working Papers 2007-04, McMaster University.
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