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Organizational Capital and Optimal Ramsey Taxation

  • Alok Johri
  • Bidyut Kumar Talukdar

Many recent studies have argued that it is useful to introduce a third input into the neoclassical production technology which encapsulates the productivity enhancing knowledge created in the process of production. This input, often called organizational capital, has been shown to improve the predictions of dynamic general equilibrium models, especially at the business cycle frequency. In this paper, we study the impact of organizational capital on optimal capital taxation in the Ramsey tradition and fi nd that the planner would choose to tax capital income in the presence of organizational capital even in environments where earlier models predicted zero taxes or even subsidies.

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File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2011-09.pdf
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Paper provided by McMaster University in its series Department of Economics Working Papers with number 2011-09.

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Length: 24 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:mcm:deptwp:2011-09
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  8. S. Rao Aiyagari, 1994. "Optimal capital income taxation with incomplete markets, borrowing constraints, and constant discounting," Working Papers 508, Federal Reserve Bank of Minneapolis.
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