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Labor and Profit Taxation, and the Supply of Public Capital

  • Pedro Gomes

    (Universidad Carlos III)

  • Davide Debortoli

    (University of California, San Diego)

The paper analyzes the determinants of four fiscal trends, observed in many developed countries over the past 40 years: a decline in the corporate tax rate and public investment offset by an increase in the labour income tax and government consumption. Within a simple neoclassical growth model with a public sector, we illustrate the interdependency between the two government problems of how to spread the tax burden and how to allocate the spending. We identify alternative hypotheses that are consistent with the observed trends, and find that technological changes account for a substantial proportion of the changes in the fiscal instruments.

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File URL: https://economicdynamics.org/meetpapers/2012/paper_325.pdf
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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 325.

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Date of creation: 2012
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Handle: RePEc:red:sed012:325
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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  1. Nieh, Chien-Chung & Ho, Tsung-wu, 2006. "Does the expansionary government spending crowd out the private consumption?: Cointegration analysis in panel data," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(1), pages 133-148, February.
  2. repec:ucp:bknber:9780226304557 is not listed on IDEAS
  3. Aaron Mehrotra & Timo Välilä, 2006. "Public Investment in Europe: Evolution and Determinants in perspective," Fiscal Studies, Institute for Fiscal Studies, vol. 27(4), pages 443-471, December.
  4. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
  5. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1.
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