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Capital Taxation and Rent Seeking

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  • Arefiev, Nikolay
  • Baron, Tatyana

Abstract

We find the optimal capital income tax rate in an imperfectly competitive economy, where some part of recourses is devoted to rent-seeking activity. Optimal tax offsets the difference between marginal social and marginal private return to capital, which is a result of rent seeking, and the difference between the before tax interest rate and the marginal productivity of capital, which arises from imperfect competition. Optimal capital income tax rate depends neither on other tax rates nor on overall tax burden. Numerically it is close to zero.

Suggested Citation

  • Arefiev, Nikolay & Baron, Tatyana, 2006. "Capital Taxation and Rent Seeking," MPRA Paper 9988, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:9988
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    References listed on IDEAS

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    More about this item

    Keywords

    Capital taxation; rent seeking; imperfect competition;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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