A NOTE ON OPTIMAL CAPITAL TAXATION WITH PREFERENCE EXTERNALITIES

Cheng-Wei Chang and Ching-chong Lai

Macroeconomic Dynamics, 2020, vol. 24, issue 3, 729-746

Abstract: This paper extends the Chamley–Judd framework by introducing preference externalities in a neoclassical growth model, and finds that the optimal capital tax increases with the extent of social-status seeking or negative leisure externalities. Furthermore, this paper finds that differences in leisure externalities lead to a distinct impact on optimal factor income taxes, and hence may serve as a plausible vehicle to explain the empirical differences in factor income taxation in the United States and Europe.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:24:y:2020:i:3:p:729-746_8

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