Factor income taxation and growth with increasing integration of world capital markets
AbstractIn a closed economy, the infinite-horizon and the overlapping generations (OG) model prescribe diametrically opposite policies on factor taxation: the former argues that the growth-maximizing capital income tax rate should be set to zero, whereas the latter argues that it should be set as high as possible. This note investigates the issue by taking into account global capital market integration. We show that the long-run growth-maximizing capital income tax rate in a small open OG economy is decreasing as the economy's capital market is increasingly integrated with the rest of the world, and will be equal to zero as prescribed in the infinite-horizon model once the degree of integration becomes sufficiently high.
Download InfoIf 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.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 21565.
Date of creation: Feb 2010
Date of revision:
Capital mobility; Endogenous growth; Factor income taxation; Overlapping generations; Small open economy;
Find related papers by JEL classification:
- F15 - International Economics - - Trade - - - Economic Integration
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
This paper has been announced in the following NEP Reports:
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.:
- Larry E. Jones & Rodolfo E. Manuelli, 1990.
"Finite Lifetimes and Growth,"
NBER Working Papers
3469, National Bureau of Economic Research, Inc.
- Nouriel Roubini & Gian-Maria Milesi-Ferretti, 1994.
"Taxation and Endogenous Growth in Open Economies,"
IMF Working Papers
94/77, International Monetary Fund.
- Milesi-Ferretti, Gian Maria & Roubini, Nouriel, 1996.
"On the Taxation of Human and Physical Capital in Models of Endogenous Growth,"
CEPR Discussion Papers
1477, C.E.P.R. Discussion Papers.
- Milesi-Ferretti, Gian Maria & Roubini, Nouriel, 1998. "On the taxation of human and physical capital in models of endogenous growth," Journal of Public Economics, Elsevier, vol. 70(2), pages 237-254, November.
- Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
- Bretschger, Lucas & Hettich, Frank, 2002.
"Globalisation, capital mobility and tax competition: theory and evidence for OECD countries,"
European Journal of Political Economy,
Elsevier, vol. 18(4), pages 695-716, November.
- Bretschger, Lucas & Hettich, Frank, 2000. "Globalisation, capital mobility and tax competition: Theory and evidence for OECD countries," Wirtschaftswissenschaftliche Diskussionspapiere 07/2000, Ernst Moritz Arndt University of Greifswald, Faculty of Law and Economics.
- Rebelo, Sergio, 1991.
"Long-Run Policy Analysis and Long-Run Growth,"
Journal of Political Economy,
University of Chicago Press, vol. 99(3), pages 500-521, June.
- Hannes Winner, 2005. "Has Tax Competition Emerged in OECD Countries? Evidence from Panel Data," International Tax and Public Finance, Springer, vol. 12(5), pages 667-687, September.
- Caballe, Jordi, 1998. "Growth Effects of Taxation under Altruism and Low Elasticity of Intertemporal Substitution," Economic Journal, Royal Economic Society, vol. 108(446), pages 92-104, January.
- 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.
- Ho, Wai-Hong & Wang, Yong, 2007. "Factor income taxation and growth under asymmetric information," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 775-789, April.
- Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.