A Case Against Zero Capital-Income Taxation

Darong Dai (), Kunrong Shen () and Ruihua Ma ()
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Kunrong Shen: School of Economics, Nanjing University, Nanjing 210093, China
Ruihua Ma: School of Management, Nanjing University, Nanjing 210093, China

Frontiers of Economics in China-Selected Publications from Chinese Universities, 2013, vol. 8, issue 1, 64-90

Abstract: This paper develops a dynamic general equilibrium model to investigate the optimal level of capital income taxation in light of stochastic endogenous economic growth. Although endogenous human capital is incorporated into our model, we restrict our investigation to the issue of optimal physical capital income tax; and the labor supply is also endogenously determined. This paper proves that the optimal capital income tax should be zero provided exogenous government expenditure on production; however, capital income should be taxed if we consider endogenous government consumption.

Keywords: stochastic endogenous growth; endogenous labor supply; endogenous human capital; optimal capital income taxation; endogenous government consumption; governmental altruism (search for similar items in EconPapers)
JEL-codes: E13 H21 H50 J22 J24 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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