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Optimal Taxation of Intangible Capital

  • Kaare P. Hagen
  • Vesa Kanniainen

This paper examines the optimal tax base in the profits tax with tangible and intagible capital and with positive external effects from investment in intangible capital. It is found that the optimal tax base adjustments for the two types of capital are determined by a compromise between the Ramsey argument for differential taxation associated with differences in demand and supply elasticities on the on hand, and the Pigouvian argument for subsidizing factors with public goods elements on the other.

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Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 94-02.

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Handle: RePEc:kud:epruwp:94-02
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  1. Joseph E. Stiglitz & Partha Dasgupta, 1970. "Differential Taxation, Public Goods, and Economic Efficiency," Cowles Foundation Discussion Papers 299, Cowles Foundation for Research in Economics, Yale University.
  2. Hagen, Kare P., 1988. "Optimal shadow prices for public production," Journal of Public Economics, Elsevier, vol. 35(1), pages 119-127, February.
  3. Sandmo, Agnar, 1985. "The effects of taxation on savings and risk taking," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 5, pages 265-311 Elsevier.
  4. Dixit, Avinash K, 1970. "On the Optimum Structure of Commodity Taxes," American Economic Review, American Economic Association, vol. 60(3), pages 295-301, June.
  5. Summers, Lawrence H, 1981. "Capital Taxation and Accumulation in a Life Cycle Growth Model," American Economic Review, American Economic Association, vol. 71(4), pages 533-44, September.
  6. Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters, in: Research in Taxation, pages 3-27 National Bureau of Economic Research, Inc.
  7. Jean-Jacques Laffont, 1988. "Fundamentals of Public Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121271, June.
  8. Hans-Werner Sinn, 1991. "Taxation and the Cost of Capital: The "Old" View, the "New" View and Another View," NBER Working Papers 3501, National Bureau of Economic Research, Inc.
  9. Chang, Ching-huei, 1988. "Optimal taxation of business and individual incomes," Journal of Public Economics, Elsevier, vol. 35(2), pages 251-263, March.
  10. Mirrlees, James A, 1972. "On Producer Taxation," Review of Economic Studies, Wiley Blackwell, vol. 39(1), pages 105-11, January.
  11. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages S3-27, April.
  12. Auerbach, Alan J, 1979. "The Optimal Taxation of Heterogeneous Capital," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 589-612, November.
  13. Martin Feldstein, 1978. "The Welfare Cost of Capital Income Taxation," NBER Chapters, in: Research in Taxation, pages 29-51 National Bureau of Economic Research, Inc.
  14. Alan J. Auerbach, 1988. "The Deadweight Loss from `Non-Neutral' Capital Income Taxation," NBER Working Papers 2510, National Bureau of Economic Research, Inc.
  15. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  16. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
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