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Demographics and the politics of capital taxation in a life-cycle economy

  • Mateos-Planas, Xavier

This article studies the effects of demographics on the mix of tax rates on labour and capital. It uses a quantitative general-equilibrium overlapping-generations model where tax rates are voted without past commitments in every period and characterized as a Markov equilibrium. In the U.S., the younger voting-age population in 1990 compared to 1965 accounts for the observed decline in the relative capital tax rate between those two years. A younger population rises the net return to capital, leads voters to increase their savings, and results in a preference for lower taxes on capital Conversely, ageing might increase capital taxation. Keywords; markov policies, demographic change, capital and labor taxation

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Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 0909.

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Date of creation: 01 Jan 2009
Date of revision:
Handle: RePEc:stn:sotoec:0909
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  1. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2001. "The survival of the welfare state," Economics Working Papers 603, Department of Economics and Business, Universitat Pompeu Fabra.
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  12. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2010. "The Macroeconomic Implications of Rising Wage Inequality in the United States," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 681-722, 08.
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  18. Persson, Torsten & Tabellini, Guido, 1994. "Representative democracy and capital taxation," Journal of Public Economics, Elsevier, vol. 55(1), pages 53-70, September.
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