Financing social security by taxing capital income: A bad idea?

Lars Kunze and Christiane Schuppert

FinanzArchiv: Public Finance Analysis, 2010, vol. 66, issue 3, 243-262

Abstract: This paper examines the growth effects of an increase of capital income taxes if the additional revenue is devoted to cutting wage-related social security contributions to reduce unemployment. The analysis is carried out in an overlapping-generations model with endogenous growth, unemployment, and a social security system comprising pensions and unemployment benefits. It is shown that the reform not only promotes employment but may additionally stimulate economic growth. Calibrating the model to match data for the EU-15 reveals that European countries can indeed gain higher employment and growth if the initial capital income tax is not too high.

Keywords: labor market; overlapping generations; social security; capital income taxation (search for similar items in EconPapers)
JEL-codes: H20 H55 O40 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (6)

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DOI: 10.1628/001522108X534844

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