IDEAS home Printed from https://ideas.repec.org/a/eee/pubeco/v40y1989i1p1-36.html
   My bibliography  Save this article

The deadweight loss from `non-neutral' capital income taxation

Author

Listed:
  • Auerbach, Alan J.

Abstract

This paper develops an overlapping generations general equilibrium growth model with an explicit characterization of the role of capital goods in the production process. The model is rich enough in structure to evaluate and measure simultaneously the different distortions associated with capital income taxation (across sectors, across assets and across time) yet simple enough to yield intuitive analytical results as well. The main result is that uniform capital income taxation is almost certainly suboptimal, theoretically, but that empirically, optimal deviations from uniform taxation are inconsequential. We also find that though the gains from a move to uniform taxation are not large in absolute magnitude these gains would be offset only by an overall rise in capital income tax rates of several percentage points. A separate contribution of the paper is the development of a technique for distinguishing intergenerational transfers from efficiency gains in analyzing the effects of policy changes on long-run welfare.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Auerbach, Alan J., 1989. "The deadweight loss from `non-neutral' capital income taxation," Journal of Public Economics, Elsevier, vol. 40(1), pages 1-36, October.
  • Handle: RePEc:eee:pubeco:v:40:y:1989:i:1:p:1-36
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/0047-2727(89)90016-9
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Willig, Robert D., 1983. "Sector differentiated capital taxation with imperfect competition and inter-industry flows," Journal of Public Economics, Elsevier, vol. 21(2), pages 295-316, July.
    2. Martin Feldstein, 1978. "The Welfare Cost of Capital Income Taxation," NBER Chapters,in: Research in Taxation, pages 29-51 National Bureau of Economic Research, Inc.
    3. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
    4. Lawrence H. Summers, 1987. "Should Tax Reform Level the Playing Field?," NBER Working Papers 2132, National Bureau of Economic Research, Inc.
    5. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-278, June.
    6. Diamond, Peter A., 1970. "Incidence of an interest income tax," Journal of Economic Theory, Elsevier, vol. 2(3), pages 211-224, September.
    7. Alan J. Auerbach, 1979. "The Optimal Taxation of Heterogeneous Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 589-612.
    8. Shoven, John B, 1976. "The Incidence and Efficiency Effects of Taxes on Income from Capital," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1261-1283, December.
    9. Ballard, Charles L. & Fullerton, Don & Shoven, John B. & Whalley, John, 2009. "A General Equilibrium Model for Tax Policy Evaluation," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226036335, June.
    10. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "Introduction to "A General Equilibrium Model for Tax Policy Evaluation"," NBER Chapters,in: A General Equilibrium Model for Tax Policy Evaluation, pages 1-5 National Bureau of Economic Research, Inc.
    11. Laurence J. Kotlikoff & Lawrence H. Summers, 1979. "Tax Incidence in a Life Cycle Model with Variable Labor Supply," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 705-718.
    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. Hagen, Kare P. & Kanniainen, Vesa, 1995. "Optimal taxation of intangible capital," European Journal of Political Economy, Elsevier, vol. 11(2), pages 361-378, June.
    2. William M. Gentry & R. Glenn Hubbard, 1998. "Fundamental Tax Reform and Corporate Financial Policy," NBER Working Papers 6433, National Bureau of Economic Research, Inc.
    3. Gravelle, Jane G & Kotlikoff, Laurence J, 1995. "Corporate Taxation and the Efficiency Gains of the 1986 Tax Reform Act," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 51-81, June.
    4. David A. Weisbach, 2004. "Measurement and Tax Depreciation Policy: The Case of Short-Term Intangibles," The Journal of Legal Studies, University of Chicago Press, vol. 33(1), pages 199-229, January.
    5. Sijbren Cnossen & Lans Bovenberg, 2001. "Fundamental Tax Reform in The Netherlands," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(4), pages 471-484, August.
    6. Jinyong Cai & Jagadeesh Gokhale, 1997. "The welfare loss from a capital income tax," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 2-10.
    7. James R. Hines Jr., 1998. "Investment Ramifications of Distortionary Tax Subsidies," NBER Working Papers 6615, National Bureau of Economic Research, Inc.
    8. Brita Bye & Turid Ã…vitsland, 2001. "The welfare effects of housing taxation in a distorted economy: A general equilibrium analysis," Discussion Papers 306, Statistics Norway, Research Department.
    9. Jinyong Cai & Jagadeesh Gokhale, 1990. "What does the capital income tax distort?," Working Paper 9013, Federal Reserve Bank of Cleveland.
    10. Blackorby, Charles & Brett, Craig, 2004. "Capital Taxation In A Simple Finite-Horizon Olg Model," The Warwick Economics Research Paper Series (TWERPS) 709, University of Warwick, Department of Economics.
    11. Darrel Cohen & Kevin Hassett & R. Glenn Hubbard, 1999. "Inflation and the User Cost of Capital: Does Inflation Still Matter?," NBER Chapters,in: The Costs and Benefits of Price Stability, pages 199-234 National Bureau of Economic Research, Inc.
    12. Cnossen Sijbren & Bovenberg Lans, 2000. "Fundamental Tax Reform In The Netherlands," Research Memorandum 003, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    13. Holmoy, Erling & Vennemo, Haakon, 1995. "A general equilibrium assessment of a suggested reform in capital income taxation," Journal of Policy Modeling, Elsevier, vol. 17(6), pages 531-556, December.
    14. David Weisbach, 2014. "The use of neutralities in international tax policy," Working Papers 1414, Oxford University Centre for Business Taxation.
    15. Lawrence H. Goulder, 1990. "Implications of Introducing U.S. Withholding Taxes on Foreigners' Interest Income," NBER Chapters,in: Tax Policy and the Economy: Volume 4, pages 103-142 National Bureau of Economic Research, Inc.
    16. Federico Revelli, 2013. "Tax incentives for cultural heritage conservation," Chapters,in: Handbook on the Economics of Cultural Heritage, chapter 6, pages i-i Edward Elgar Publishing.

    More about this item

    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:eee:pubeco:v:40:y:1989:i:1:p:1-36. 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: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/505578 .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.