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Financing social security by taxing capital income: A bad idea?

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  • Lars Kunze
  • Christiane Schuppert

Abstract

This paper examines the growth effects of an increase of capital income taxes if the additional revenue is devoted to cutting wage-related social security contributions to reduce unemployment. The analysis is carried out in an overlapping-generations model with endogenous growth, unemployment, and a social security system comprising pensions and unemployment benefits. It is shown that the reform not only promotes employment but may additionally stimulate economic growth. Calibrating the model to match data for the EU-15 reveals that European countries can indeed gain higher employment and growth if the initial capital income tax is not too high.

Suggested Citation

  • Lars Kunze & Christiane Schuppert, 2010. "Financing social security by taxing capital income: A bad idea?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 66(3), pages 243-262, September.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201009)66:3_243:fssbtc_2.0.tx_2-5
    DOI: 10.1628/001522108X534844
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    Cited by:

    1. Minoru Watanabe, 2021. "A note on capital income taxation with involuntary unemployment," Discussion Papers 2126, Graduate School of Economics, Kobe University.
    2. Vasiliki Fotopoulou, 2017. "Preservice Student-Teachers’ Perceptions of Themselves as Teachers- Experience from Teaching Practicum," European Journal of Multidisciplinary Studies Articles, Revistia Research and Publishing, vol. 2, September.
    3. Minoru Watanabe, 2023. "Capital income taxation and trade unions in an endogenous fertility model," Discussion Papers 2302, Graduate School of Economics, Kobe University.
    4. Chih-Wen Mao, 2016. "Growth, income inequality, and capital income taxes: evidence from a seemingly unrelated regression model on panel data," Economics Bulletin, AccessEcon, vol. 36(3), pages 1463-1478.
    5. Watanabe, Minoru & Miyake, Yusuke & Yasuoka, Masaya, 2019. "Capital income taxation in endogenous fertility model," MPRA Paper 97721, University Library of Munich, Germany.
    6. Minoru Watanabe, 2021. "Tax reform, unemployment, and fertility," Discussion Papers 2128, Graduate School of Economics, Kobe University.

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    More about this item

    Keywords

    labor market; overlapping generations; social security; capital income taxation;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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