Capital Taxation, Long-run Growth, and Bequests

Lars Kunze

No 113, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: It has been shown that higher capital taxes can have a growth-enhancing effect when combined with a revenue-compensating cut in wage taxes (Uhlig and Yanagawa 1996; European Economic Review 40, 1521-1540) or with an expansion in productivity-increasing public services (Rivas 2003; European Economic Review 47, 477-503). The present paper demonstrates that these results critically hinge on the existence of a bequest motive. It is shown that a wage-tax cut is no longer growth-enhancing when bequests are operative. By way of contrast, increasing productive public services may well boost growth. The theoretical findings are illustrated by numerical simulations based on US data.

Keywords: Capital income taxation; public spending; overlapping generations; growth; family altruism (search for similar items in EconPapers)
JEL-codes: D64 D91 H24 H50 O40 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (1)

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Journal Article: Capital taxation, long-run growth, and bequests (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:113

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