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Is there a majority to support a capital tax cut?

  • François Gourio

    ()

    (Boston University, Department of Economics)

A capital income tax cut must in general be financed by increasing other taxes, and thus will have redistributive effects. This paper studies analytically the redistribution implied by a capital income tax cut in the Ramsey-Cass-Koopmans neoclassical growth model when agents differ in wealth and human capital and markets are frictionless. A few parameters a¤ect the efficiency benefits and redistributive costs of capital taxation, and determine the set of agents who are in favor of a capital income tax cut. For plausible parameter values, a majority would lose from the tax cut, i.e. high capital taxes may be politically sustainable.

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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number wp2008-001.

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Length: 25
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:bos:wpaper:wp2008-001
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  8. Andrew Atkeson & V.V. Chari & Patrick J. Kehoe, 1999. "Taxing capital income: a bad idea," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-17.
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