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Is there a majority to support a capital tax cut?

  • Gourio, François

A capital income tax cut must in general be financed by increasing other taxes, and thus will have redistributive effects. This paper studies analytically the redistribution implied by a capital income tax cut in the Ramsey-Cass-Koopmans neoclassical growth model when agents differ in wealth and human capital and markets are frictionless. A few parameters affect the efficiency costs and redistributive benefits of capital taxation, and determine the set of agents who are in favor of a capital income tax cut. For plausible parameter values, a majority would lose from the tax cut, i.e. high capital taxes may be politically sustainable.

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

Volume (Year): 33 (2009)
Issue (Month): 6 (June)
Pages: 1278-1295

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Handle: RePEc:eee:dyncon:v:33:y:2009:i:6:p:1278-1295
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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