Income Taxation and Finite Horizons in a Human Capital Model

Cruz Echevarria and Amaia Iza

International Tax and Public Finance, 2000, vol. 7, issue 6, 665-689

Abstract: We address the issue ofcapital vs. labor income taxation in an overlapping generationsmodel with a positive externality in the human capital production.We compare the performance of the economy in the steady stateunder different tax policies. Three results are obtained. First,the size of the tax revenue required strongly affects the optimal(welfare maximizing) capital-labor income tax portfolio. Inparticular, a zero physical capital income tax rate need notbe optimal. Second, the way in which the finite life cycle issplit between the working and the retirement period also matters.And third, the size of the externality in the human capital productionalso affects the optimal income tax rate mix. Copyright Kluwer Academic Publishers 2000

Keywords: human capital; income taxation; lifetime horizon (search for similar items in EconPapers)
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:7:y:2000:i:6:p:665-689

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DOI: 10.1023/A:1008729426519

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