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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
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Handle: RePEc:stn:sotoec:0909
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  1. Huffman, Gregory W., 1996. "Endogenous tax determination and the distribution of wealth," Working Papers 9605, Federal Reserve Bank of Dallas.
  2. John D. Griffin, 2008. "Measuring Legislator Ideology," Social Science Quarterly, Southwestern Social Science Association, vol. 89(2), pages 337-350.
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  8. Elisabeth R. Gerber & Jeffrey B. Lewis, 2004. "Beyond the Median: Voter Preferences, District Heterogeneity, and Political Representation," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1364-1383, December.
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  13. Mateos-Planas, Xavier, 2008. "A quantitative theory of social security without commitment," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 652-671, April.
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  15. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2008. "The Macroeconomic Implications of Rising Wage Inequality in the United States," NBER Working Papers 14052, National Bureau of Economic Research, Inc.
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  17. Paul Klein & Per Krusell & José-Víctor Ríos-Rull, 2008. "Time-Consistent Public Policy," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 789-808.
  18. Assaf Razin & Efraim Sadka & Phillip Swagel, 2004. "Capital income taxation under majority voting with aging population," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 140(3), pages 476-495, September.
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