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On the Incidence of a Tax on Pure Rent with Infinite Horizons

Author

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  • Alberto Petrucci

    (LUISS G. Carli)

Abstract

This paper studies the incidence of a tax on pure rent within an intertemporal optimizing model of capital accumulation and endogenous labor with infinite-lived agents. Two cases are considered for the labor market: the neoclassical theory, characterized by perfectly competitive wages and no unemployment, and the incentive-wage theory of the labor-turnover type, characterized by real wage rigidity and structural unemployment. In the neoclassical equilibrium, the land rent tax is unshifted when consumers are lump-sum compensated for the tax. If tax revenues are used to finance government spending, pure rent taxation increases employment, boosts capital accumulation and reduces real wage as well as land yield. In the incentive-wage economy, the land rent tax, regardless of the way in which tax proceeds are employed, always increases employment, capital stock, and land reward, but exerts an ambiguous effect on the wage rate.

Suggested Citation

  • Alberto Petrucci, 2004. "On the Incidence of a Tax on Pure Rent with Infinite Horizons," Working Papers 2004.160, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2004.160
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    File URL: https://www.feem.it/m/publications_pages/NDL2004-160.pdf
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    More about this item

    Keywords

    Pure rent taxation; Capital formation; Land; Structural unemployment;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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