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How to Protect Future Generations Using Tax Base Restrictions

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  • Antonio Rangel

Abstract

This paper studies constitutional restrictions on the tax base that protect future generations from expropriation and improve the optimality of investment in Intergenerational Public Goods (IPGs). The choice of the tax base matters because it affects how intergenerational (IG) spillovers are capitalized into assets that are owned by current generations, and thus the IG politics. We show that with an income tax base, present generations expropriate future generations and produce inefficiently low levels of IPGs. By contrast, with a land tax base, IG expropriation using debt is impossible, the level of investment in IPGs is higher and, for some types of IPGs, Pareto optimal.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9179.

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Date of creation: Sep 2002
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Publication status: published as Rangel, Antonio. "How To Protect Future Generations Using Tax-Base Restrictions," American Economic Review, 2005, v95(1,Mar), 314-346.
Handle: RePEc:nbr:nberwo:9179

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  1. Poterba, James M., 1995. "Capital budgets, borrowing rules, and state capital spending," Journal of Public Economics, Elsevier, vol. 56(2), pages 165-187, February.
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  3. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1997. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1121-66, December.
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  5. James M. Poterba, 1995. "State Responses to Fiscal Crisis: The Effects of Budgetary Institutionsand Politics," NBER Working Papers 4375, National Bureau of Economic Research, Inc.
  6. Feldstein, Martin S, 1977. "The Surprising Incidence of a Tax on Pure Rent: A New Answer to an Old Question," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 349-60, April.
  7. Laurence J. Kotlikoff & Robert W. Rosenthal, 1993. "Some Inefficiency Implications Of Generational Politics And Exchange," Economics and Politics, Wiley Blackwell, vol. 5(1), pages 27-42, 03.
  8. Skinner, Jonathan, 1991. "Prospects for Agricultural Land Taxation in Developing Countries," World Bank Economic Review, World Bank Group, vol. 5(3), pages 493-511, September.
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Cited by:
  1. Hilber, Christian A. L., 2007. "New Housing Supply and the Dilution of Social Capital," MPRA Paper 5134, University Library of Munich, Germany.
  2. Robert P. Inman, 2010. "States in fiscal distress," Regional Economic Development, Federal Reserve Bank of St. Louis, issue Oct, pages 65-80.
  3. Gersbach, Hans, 2009. "Minority voting and public project provision," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3(35), pages 1-40.
  4. Gersbach, Hans & Kleinschmidt, Tobias, 2009. "Power to youth: Designing democracy for long-term well-being," Mathematical Social Sciences, Elsevier, vol. 58(2), pages 158-172, September.
  5. Koethenbuerger, Marko & Poutvaara, Panu, 2009. "Rent taxation and its intertemporal welfare effects in a small open economy," Munich Reprints in Economics 19461, University of Munich, Department of Economics.
  6. Parry, Ian W.H., 2007. "Are the costs of reducing greenhouse gases from passenger vehicles negative?," Journal of Urban Economics, Elsevier, vol. 62(2), pages 273-293, September.
  7. Marco Bassetto & Thomas J Sargent, 2006. "Politics and Efficiency of Separating Capital and Ordinary Government Budgets," The Quarterly Journal of Economics, MIT Press, vol. 121(4), pages 1167-1210, November.
  8. Springer, Job D. & Lusby, Aaron K. & Leatherman, John C. & Featherstone, Allen M., 2007. "Property Tax Lids and the Effect on Kansas," 2007 Annual Meeting, February 4-7, 2007, Mobile, Alabama 34887, Southern Agricultural Economics Association.
  9. Robert P. Inman, 2010. "States in Fiscal Distress," NBER Working Papers 16086, National Bureau of Economic Research, Inc.
  10. Marco Bassetto, 2009. "The Research Agenda: Marco Bassetto on the Quantitative Evaluation of Fiscal Policy Rules," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 10(2), April.

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