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Capital taxation, long-run growth, and bequests

  • Kunze, Lars

It has been shown that higher capital taxes can have a growth-enhancing effect when combined with a revenue-compensating cut in wage taxes or with an expansion in productivity-increasing public services. The present paper demonstrates that these results critically hinge on the existence of a bequest motive. It is shown that a wage-tax cut is no longer growth-enhancing when bequests are operative. By way of contrast, increasing productive public services may well boost growth. The theoretical findings are illustrated by numerical simulations based on US data.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 32 (2010)
Issue (Month): 4 (December)
Pages: 1067-1082

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Handle: RePEc:eee:jmacro:v:32:y:2010:i:4:p:1067-1082
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