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Capital Taxation, Long-run Growth, and Bequests

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Author Info
Lars Kunze ()
Abstract

It has been shown that higher capital taxes can have a growth-enhancing effect when combined with a revenue-compensating cut in wage taxes (Uhlig and Yanagawa 1996; European Economic Review 40, 1521–1540) or with an expansion in productivity-increasing public services (Rivas 2003;European Economic Review 47, 477–503).The present paper demonstrates that these results critically hinge on the existence of a bequest motive. It is shown that a wage-tax cut is no longer growth-enhancing when bequests are operative. By way of contrast, increasing productive public services may well boost growth. The theoretical findings are illustrated by numerical simulations based on US data.

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Publisher Info
Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0113.

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Length: 34 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:rwi:repape:0113

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Related research
Keywords: Capital income taxation; public spending; overlapping generations; growth; family altruism;

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Find related papers by JEL classification:
D64 - Microeconomics - - Welfare Economics - - - Altruism
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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This page was last updated on 2009-11-17.

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