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Optimal Flat-Rate Taxes on Capital--A Re-examination of Lucas' Supply Side Model

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  • Gruner, Hans Peter
  • Heer, Burkhard

Abstract

We examine the transitional dynamics of Lucas' supply side model of the US economy in order to specify the effects of capital taxation on economic growth and welfare. We restrict the analysis to policy plans characterized by constant capital taxes and require the government to maintain a balanced budget. Under these restrictions, the optimal tax rate on capital is shown to be positive and sensitive to the government expenditure rule. Welfare can be further increased by the introduction of a tax on asset holdings. Copyright 2000 by Oxford University Press.

Suggested Citation

  • Gruner, Hans Peter & Heer, Burkhard, 2000. "Optimal Flat-Rate Taxes on Capital--A Re-examination of Lucas' Supply Side Model," Oxford Economic Papers, Oxford University Press, vol. 52(2), pages 289-305, April.
    • Handle: RePEc:oup:oxecpp:v:52:y:2000:i:2:p:289-305
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    Cited by:

    1. Strulik, Holger, 2003. "Capital tax reform, corporate finance, and economic growth and welfare," Journal of Economic Dynamics and Control, Elsevier, vol. 28(3), pages 595-615, December.
    2. Heer, Burkhard & Trede, Mark, 2003. "Efficiency and distribution effects of a revenue-neutral income tax reform," Journal of Macroeconomics, Elsevier, vol. 25(1), pages 87-107, March.
    3. Holger Strulik, 2003. "Supply‐Side Economics of Germany's Year 2000 Tax Reform: A Quantitative Assessment," German Economic Review, Verein für Socialpolitik, vol. 4(2), pages 183-202, May.
    4. Heer, Burkhard, 2003. "Welfare costs of inflation in a dynamic economy with search unemployment," Journal of Economic Dynamics and Control, Elsevier, vol. 28(2), pages 255-272, November.
    5. Manuel A. Gómez, 2010. "The welfare cost of external habits: a quantitative assessment," Estudios de Economia, University of Chile, Department of Economics, vol. 37(1 Year 20), pages 5-26, June.
    6. Josef Honerkamp & Stefan Moog & Bernd Raffelhüschen, 2004. "Earlier or Later: A General Equilibrium Analysis of Bringing Forward an Already Announced Tax Reform," CESifo Working Paper Series 1307, CESifo.
    7. Steven P. Cassou & Kevin J. Lansing, 2006. "Tax Reform with Useful Public Expenditures," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(4), pages 631-676, October.
    8. Burkhard Heer & Andreas Irmen & Bernd Süssmuth, 2023. "Explaining the decline in the US labor share: taxation and automation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(6), pages 1481-1528, December.
    9. Manuel Gomez, 2003. "Effects of Flat-Rate Taxes: to What Extent Does the Leisure Specification Matter?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 404-430, April.
    10. Burkhard Heer & Alfred Maussner, 2011. "The Cash-In-Advance Constraint in Monetary Growth Models," CESifo Working Paper Series 3647, CESifo.
    11. Irfan Ahmed & Claudio Socci & Francesca Severini & Rosita Pretaroli, 2019. "Fiscal policy for households and public budget constraint in Italy," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 36(1), pages 19-35, April.
    12. Gomez, Manuel A., 2007. "Optimal tax structure in a two-sector model of endogenous growth," Journal of Macroeconomics, Elsevier, vol. 29(2), pages 305-325, June.
    13. Strulik, Holger & Trimborn, Timo, 2010. "Anticipated tax reforms and temporary tax cuts: A general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 2141-2158, October.
    14. Gebhard Kirchgässner, 2004. "Die Bedeutung der Körperschaftssteuer: Theoretische Überlegungen, die internationale Entwicklung und die Situation in der Schweiz," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 59(03), pages 239-272, September.
    15. Simon Bösenberg & Peter Egger & Benedikt Zoller-Rydzek, 2018. "Capital taxation, investment, growth, and welfare," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(2), pages 325-376, April.
    16. George Halkos & Nickolas Kyriazis, 2006. "Is tax competition harmful and is the EU an optimal tax area?," European Journal of Law and Economics, Springer, vol. 21(2), pages 163-177, April.
    17. Josef Honerkamp & Stefan Moog & Bernd Raffelhüeschen, 2004. "Earlier Or Later: A General Equilibrium Analysis of Bringing Forward an Already Announced Tax Reform," Public Economics 0409012, University Library of Munich, Germany.

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