Optimal Capital Taxation in A Neoclassical Growth Model

Chia-Hui Lu and Been-Lon Chen

No 13-A005, IEAS Working Paper : academic research from Institute of Economics, Academia Sinica, Taipei, Taiwan

Abstract: This paper studies the optimal factor tax incidence in a neoclassical growth model with a given share of government expenditure in output. In the Ramsey planner’s optimization, the effect of next period’s capital on government expenditure equals the given share of the marginal product of capital. Capital accumulation reduces the discounted net marginal product of next period’s capital by way of increasing government expenditure. In order to internalize the distortion, it is optimal to tax capital income in the long run.

Keywords: Optimal factor taxation; efficiency (search for similar items in EconPapers)
JEL-codes: D83 E62 H21 J64 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2013-05
New Economics Papers: this item is included in nep-acc, nep-dge, nep-fdg, nep-pbe and nep-pub
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Related works:
Journal Article: Optimal Capital Taxation in a Neoclassical Growth Model (2015)
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