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Optimal capital income taxation, investment subsidies and redistribution in a neoclassical growth model

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  • Rehme, Günther

Abstract

In this paper I readdress the result that capital income taxes are bad instruments for pure redistribution and should be zero in the long run. In a neoclassical growth model a capital income cum investment subsidy tax, which is not distorting accumulation, is considered to investigate if net capital income taxes used for pure redistribution are zero in a long-run optimum. I find that capital income taxes may be nonzero, depending on the political power of those who receive redistributive transfers, the distribution of pre-tax factor incomes, and the intertemporal elasticity of substitution.

Suggested Citation

  • Rehme, Günther, 2007. "Optimal capital income taxation, investment subsidies and redistribution in a neoclassical growth model," Darmstadt Discussion Papers in Economics 188, Darmstadt University of Technology, Department of Law and Economics.
    • Handle: RePEc:zbw:darddp:dar_35711
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    1. Luigi L. Pasinetti, 1962. "Rate of Profit and Income Distribution in Relation to the Rate of Economic Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 29(4), pages 267-279.
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    Cited by:

    1. Günther Rehme, 2023. "Capital depreciation allowances, redistributive taxation, and economic growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(1), pages 168-195, February.

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    More about this item

    Keywords

    Growth; Redistribution; Investment Subsidies; Capital Income Taxes;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution

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