IDEAS home Printed from https://ideas.repec.org/a/cup/macdyn/v13y2009i03p279-304_08.html
   My bibliography  Save this article

Why Are Capital Income Taxes So High?

Author

Listed:
  • Floden, Martin

Abstract

The Ramsey optimal taxation theory implies that the tax rate on capital income should be zero in the long run. This result holds even if the social planner only cares about workers that do not hold assets, or if the planner only cares about any other group in the economy. This paper demonstrates that although all households agree that capital income taxation should be eliminated in the long run, they do not agree on how to eliminate these taxes. Wealthy households would prefer a reform that is funded by higher taxes on labour income while households with little wealth would prefer a reform that is funded mostly by high taxes on initial wealth. Pareto improving reforms typically exist, but the welfare gains of such reforms are modest.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Floden, Martin, 2009. "Why Are Capital Income Taxes So High?," Macroeconomic Dynamics, Cambridge University Press, vol. 13(03), pages 279-304, June.
  • Handle: RePEc:cup:macdyn:v:13:y:2009:i:03:p:279-304_08
    as

    Download full text from publisher

    File URL: http://journals.cambridge.org/abstract_S136510050808005X
    File Function: link to article abstract page
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. George Psacharopoulos, 1997. "Child labor versus educational attainment Some evidence from Latin America," Journal of Population Economics, Springer;European Society for Population Economics, pages 377-386.
    2. Basu, Kaushik & Van, Pham Hoang, 1998. "The Economics of Child Labor," American Economic Review, American Economic Association, pages 412-427.
    3. Kaushik Basu, 1999. "Child Labor: Cause, Consequence, and Cure, with Remarks on International Labor Standards," Journal of Economic Literature, American Economic Association, pages 1083-1119.
    4. Gary S. Becker & Kevin M. Murphy & Robert Tamura, 1994. "Human Capital, Fertility, and Economic Growth," NBER Chapters,in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 323-350 National Bureau of Economic Research, Inc.
    5. Emerson, Patrick M & Souza, Andre Portela, 2003. "Is There a Child Labor Trap? Intergenerational Persistence of Child Labor in Brazil," Economic Development and Cultural Change, University of Chicago Press, pages 375-398.
    6. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    7. Dirk Krueger & Jessica Tjornhom Donohue, 2007. "On The Distributional Consequences Of Child Labor Legislation," Working Papers id:975, eSocialSciences.
    8. Oded Galor & Omer Moav, 2006. "Das Human-Kapital: A Theory of the Demise of the Class Structure," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 85-117.
    9. David N. Weil & Oded Galor, 1999. "From Malthusian Stagnation to Modern Growth," American Economic Review, American Economic Association, pages 150-154.
    10. Pushkar Maitra & Ranjan Ray, 2002. "The Joint Estimation of Child Participation in Schooling and Employment: Comparative Evidence from Three Continents," Oxford Development Studies, Taylor & Francis Journals, pages 41-62.
    11. Patrick J. Kehoe & Ellen R. McGrattan, 2005. "Sudden Stops and Output Drops," American Economic Review, American Economic Association, pages 381-387.
    12. Holger Strulik, 2004. "Economic growth and stagnation with endogenous health and fertility," Journal of Population Economics, Springer;European Society for Population Economics, pages 433-453.
    13. Dirk Krueger & Jessica Tjornhom Donohue, 2005. "On The Distributional Consequences Of Child Labor Legislation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 785-815, August.
    14. Bell, Clive & Gersbach, Hans, 2009. "Child Labor And The Education Of A Society," Macroeconomic Dynamics, Cambridge University Press, pages 220-249.
    15. Rosenzweig, Mark R, 1990. "Population Growth and Human Capital Investments: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 38-70, October.
    16. Moshe Hazan & Binyamin Berdugo, 2002. "Child Labour, Fertility, and Economic Growth," Economic Journal, Royal Economic Society, vol. 112(482), pages 810-828, October.
    17. Ranjan, Priya, 1999. "An economic analysis of child labor," Economics Letters, Elsevier, vol. 64(1), pages 99-105, July.
    18. Bell, Clive & Gersbach, Hans, 2009. "Child Labor And The Education Of A Society," Macroeconomic Dynamics, Cambridge University Press, pages 220-249.
    19. George Psacharopoulos & Harry Anthony Patrinos, 1997. "Family size, schooling and child labor in Peru - An empirical analysis," Journal of Population Economics, Springer;European Society for Population Economics, pages 387-405.
    20. David N. Weil & Oded Galor, 2000. "Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond," American Economic Review, American Economic Association, pages 806-828.
    21. Matthias Doepke & Fabrizio Zilibotti, 2005. "The Macroeconomics of Child Labor Regulation," American Economic Review, American Economic Association, pages 1492-1524.
    22. David N. Weil & Oded Galor, 1999. "From Malthusian Stagnation to Modern Growth," American Economic Review, American Economic Association, pages 150-154.
    23. Holger Strulik, 2004. "Child mortality, child labour and economic development," Economic Journal, Royal Economic Society, vol. 114(497), pages 547-568, July.
    24. Carol Ann Rogers & Kenneth A. Swinnerton, 1999. "The Economics of Child Labor: Comment," American Economic Review, American Economic Association, pages 1382-1385.
    25. Dessy, Sylvain E., 2000. "A defense of compulsive measures against child labor," Journal of Development Economics, Elsevier, pages 261-275.
    26. Aumann, Robert J & Kurz, Mordecai, 1977. "Power and Taxes," Econometrica, Econometric Society, vol. 45(5), pages 1137-1161, July.
    27. Ehrlich, Isaac & Lui, Francis T, 1991. "Intergenerational Trade, Longevity, and Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1029-1059, October.
    28. Rosenzweig, Mark R & Evenson, Robert E, 1977. "Fertility, Schooling, and the Economic Contribution of Children in Rural India: An Econometric Analysis," Econometrica, Econometric Society, vol. 45(5), pages 1065-1079, July.
    29. Raut, L K & Srinivasan, T N, 1994. "Dynamics of Endogenous Growth," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 777-790.
    30. Gersbach, Hans & Siemers, Lars, 2005. "Can Democracy Educate a Society?," IZA Discussion Papers 1693, Institute for the Study of Labor (IZA).
    31. Carol Ann Rogers & Kenneth A. Swinnerton, 1999. "The Economics of Child Labor: Comment," American Economic Review, American Economic Association, pages 1382-1385.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gourio, François, 2009. "Is there a majority to support a capital tax cut?," Journal of Economic Dynamics and Control, Elsevier, vol. 33(6), pages 1278-1295, June.
    2. Albert Marcet & Katharina Greulich, 2008. "Pareto-Improving Optimal Capital and Labor Taxes," UFAE and IAE Working Papers 733.08, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    3. Mathieu-Bolh, Nathalie, 2010. "Welfare improving distributionally neutral tax reforms," Economic Modelling, Elsevier, vol. 27(5), pages 1253-1268, September.

    More about this item

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:macdyn:v:13:y:2009:i:03:p:279-304_08. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Keith Waters). General contact details of provider: http://journals.cambridge.org/jid_MDY .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.