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Demographics and the politics of capital taxation in a life-cycle economy

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  • Mateos-Planas, Xavier

Abstract

This article studies the effects of demographics on the mix of tax rates on labour and capital. It uses a quantitative general-equilibrium overlapping-generations model where tax rates are voted without past commitments in every period and characterized as a Markov equilibrium. In the U.S., the younger voting-age population in 1990 compared to 1965 accounts for the observed decline in the relative capital tax rate between those two years. A younger population rises the net return to capital, leads voters to increase their savings, and results in a preference for lower taxes on capital Conversely, ageing might increase capital taxation. Keywords; markov policies, demographic change, capital and labor taxation

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Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 0909.

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Date of creation: 01 Jan 2009
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Handle: RePEc:stn:sotoec:0909

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  1. Hassler, John & Mora, José V Rodríguez & Storesletten, Kjetil & Zilibotti, Fabrizio, 2001. "The Survival of the Welfare State," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2905, C.E.P.R. Discussion Papers.
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  4. Per Krusell & Jose-Victor Rios-Rull, 1997. "On the size of U.S. government: political economy in the neoclassical growth model," Staff Report, Federal Reserve Bank of Minneapolis 234, Federal Reserve Bank of Minneapolis.
  5. Assaf Razin & Efraim Sadka & Phillip Swagel, 2004. "Capital income taxation under majority voting with aging population," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 140(3), pages 476-495, September.
  6. Persson, Torsten & Tabellini, Guido, 1994. "Representative democracy and capital taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 55(1), pages 53-70, September.
  7. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(2), pages 465-90, May.
  8. Jonathan Heathcote, 2003. "The Macroeconomic Implications of Rising Wage Inequality in the United States," Working Papers, Georgetown University, Department of Economics gueconwpa~03-03-19, Georgetown University, Department of Economics.
  9. Paul Klein & Per Krusell & José-V�ctor R�os-Rull, 2008. "Time-Consistent Public Policy," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 789-808.
  10. Assaf Razin & Efraim Sadka & Phillip Swagel, 2001. "The Aging Population and the Size of the Welfare State," NBER Working Papers 8405, National Bureau of Economic Research, Inc.
  11. Phillip Swagel & Efraim Sadka & Assaf Razin, 2002. "The Aging of the Population and the Size of the Welfare State," IMF Working Papers 02/68, International Monetary Fund.
  12. David Carey & Harry Tchilinguirian, 2000. "Average Effective Tax Rates on Capital, Labour and Consumption," OECD Economics Department Working Papers 258, OECD Publishing.
  13. John D. Griffin, 2008. "Measuring Legislator Ideology," Social Science Quarterly, Southwestern Social Science Association, Southwestern Social Science Association, vol. 89(2), pages 337-350.
  14. Elisabeth R. Gerber & Jeffrey B. Lewis, 2004. "Beyond the Median: Voter Preferences, District Heterogeneity, and Political Representation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(6), pages 1364-1383, December.
  15. Kenneth R. Beauchemin, 1998. "Intergenerational Politics, Fiscal Policy and Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 835-858, October.
  16. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, American Economic Association, vol. 84(3), pages 600-621, June.
  17. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, Elsevier, vol. 34(3), pages 297-323, December.
  18. Mateos-Planas, Xavier, 2008. "A quantitative theory of social security without commitment," Journal of Public Economics, Elsevier, Elsevier, vol. 92(3-4), pages 652-671, April.
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Cited by:
  1. Mateos-Planas, Xavier, 2008. "A quantitative theory of social security without commitment," Journal of Public Economics, Elsevier, Elsevier, vol. 92(3-4), pages 652-671, April.
  2. Assaf Razin, 2013. "Migration into the Welfare State: Tax and Migration Competition," NBER Working Papers 19346, National Bureau of Economic Research, Inc.
  3. Jorge Soares, Marina Azzimonti, Pierre-Daniel Sarte & Pierre-Daniel Sarte & Jorge Soares, 2006. "Optimal Policy and (the Lack of) Time Inconsistency: Insights from Simple Models," Working Papers, University of Delaware, Department of Economics 06-08, University of Delaware, Department of Economics.

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