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Optimal taxation of capital income with imperfectly competitive product markets

  • Guo, Jang-Ting
  • Lansing, Kevin J.

We show that the steady-state optimal tax on capital income can be negative, positive, or zero in a neoclassical growth model that allows for imperfectly competitive product markets. The sign of the optimal tax rate depends crucially on (1) the degree of monopoly power, (2) the extent to which monopoly profits can be taxed, (3) the size of the depreciation allowance, and (4) the magnitude of government expenditures. For an empirically plausible set of parameters, we find that the steady-state optimal capital tax can range between -10 and 22%.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 23 (1999)
Issue (Month): 7 (June)
Pages: 967-995

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Handle: RePEc:eee:dyncon:v:23:y:1999:i:7:p:967-995
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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