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Rent taxation and its intertemporal welfare effects in a small open economy

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  • Marko Koethenbuerger

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  • Panu Poutvaara

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Abstract

Previous literature concludes that replacing wage taxation by taxes on a fixed factor or its rents benefits future generations. However, the effects of such steady-state gains on the transition generations have been left open. In this paper, we show that taxation of rents may also increase utility of the current generation provided tax revenues are earmarked to reduce wage taxes. In particular, a shift in the tax mix may yield an intergenerational Pareto-improvement when the initially prevailing tax mix is sufficiently skewed toward wage taxation.
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Suggested Citation

  • Marko Koethenbuerger & Panu Poutvaara, 2009. "Rent taxation and its intertemporal welfare effects in a small open economy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(5), pages 697-709, October.
  • Handle: RePEc:kap:itaxpf:v:16:y:2009:i:5:p:697-709
    DOI: 10.1007/s10797-008-9085-9
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    References listed on IDEAS

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    1. Calvo, Guillermo A & Kotlikoff, Laurence J & Rodriguez, Carlos Alfredo, 1979. "The Incidence of a Tax on Pure Rent: A New (?) Reason for an Old Answer," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 869-874, August.
    2. Marko Kothenbürger & Panu Poutvaara, 2006. "Social Security Reform and Investment in Education: Is There Scope for a Pareto Improvement?," Economica, London School of Economics and Political Science, vol. 73(290), pages 299-319, May.
    3. Gordon, Roger H & Bovenberg, A Lans, 1996. "Why Is Capital So Immobile Internationally? Possible Explanations and Implications for Capital Income Taxation," American Economic Review, American Economic Association, vol. 86(5), pages 1057-1075, December.
    4. Poutvaara, Panu, 2004. "Gerontocracy revisited: unilateral transfer to the young may benefit the middle-aged," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 161-174, January.
    5. Ihori, Toshihiro, 1990. "Economic effects of land taxes in an inflationary economy," Journal of Public Economics, Elsevier, vol. 42(2), pages 195-211, July.
    6. Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2007. "Welfare reform in European countries: a microsimulation analysis," Economic Journal, Royal Economic Society, vol. 117(516), pages 1-44, January.
    7. Eaton, Jonathan, 1988. "Foreign-Owned Land," American Economic Review, American Economic Association, vol. 78(1), pages 76-88, March.
    8. Marko Köthenbürger & Panu Poutvaara, 2002. "Social Security Reform and Intergenerational Trade: Is there Scope for a Pareto-Improvement?," CESifo Working Paper Series 795, CESifo Group Munich.
    9. Chamley, Christophe & Wright, Brian D., 1987. "Fiscal incidence in an overlapping generations model with a fixed asset," Journal of Public Economics, Elsevier, vol. 32(1), pages 3-24, February.
    10. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1039-1073.
    11. Antonio Rangel, 2003. "Forward and Backward Intergenerational Goods: Why Is Social Security Good for the Environment?," American Economic Review, American Economic Association, vol. 93(3), pages 813-834, June.
    12. Feldstein, Martin S, 1977. "The Surprising Incidence of a Tax on Pure Rent: A New Answer to an Old Question," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 349-360, April.
    13. Petrucci, Alberto, 2006. "The incidence of a tax on pure rent in a small open economy," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 921-933, May.
    14. Antonio Rangel, 2002. "How to Protect Future Generations Using Tax Base Restrictions," NBER Working Papers 9179, National Bureau of Economic Research, Inc.
    15. Antonio Rangel, 2005. "How to Protect Future Generations Using Tax-Base Restrictions," American Economic Review, American Economic Association, vol. 95(1), pages 314-346, March.
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    Cited by:

    1. Nguyen Thang Dao & Ottmar Edenhofer, 2018. "Feldstein Meets George: Land Rent Taxation and Socially Optimal Allocation in Economies with Environmental Externality," CESifo Working Paper Series 6937, CESifo Group Munich.
    2. repec:kap:itaxpf:v:24:y:2017:i:2:d:10.1007_s10797-016-9403-6 is not listed on IDEAS
    3. Jan Siegmeier & Linus Mattauch & Max Franks & David Klenert & Anselm Schultes & Ottmar Edenhofer, 2015. "A Public Finance Perspective on Climate Policy: Six Interactions That May Enhance Welfare," Working Papers 2015.31, Fondazione Eni Enrico Mattei.
    4. repec:eee:jeeman:v:88:y:2018:i:c:p:366-378 is not listed on IDEAS

    More about this item

    Keywords

    Rent taxes; Capitalization; Transitional dynamics; Labor supply; Asset prices; H22; E62; F02;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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