Optimal Capital Taxation in an Economy with Innovation-Driven Growth

Ping-Ho Chen (), Angus Chu, Hsun Chu and Ching-chong Lai

No 201913, Working Papers from University of Liverpool, Department of Economics

Abstract: This paper investigates optimal capital taxation in an innovation-driven growth model. We examine how the optimal capital tax rate varies with externalities associated with R&D and innovation. Our results show that the optimal capital tax rate is higher when (i) the "stepping on toes effect" is smaller, (ii) the "standing on shoulders effect" is stronger, or (iii) the extent of creative destruction is greater. Moreover, the optimal capital tax rate and the monopolistic markup exhibit an inverted-U relationship. By calibrating our model to the US economy, we find that the optimal capital tax rate is positive, at a rate of around 11.9 percent. We also find that a positive optimal capital tax rate is more likely to be the case when there is underinvestment in R&D.

Keywords: Optimal capital taxation; R&D externalities; innovation (search for similar items in EconPapers)
JEL-codes: E62 H21 O31 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2019-09
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Forthcoming

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https://www.liverpool.ac.uk/media/livacuk/schoolof ... Capital,Taxation.pdf First version, 2019 (application/pdf)

Related works:
Journal Article: Optimal capital taxation in an economy with innovation-driven growth (2023)
Working Paper: Optimal Capital Taxation in an Economy with Innovation-Driven Growth (2020)
Working Paper: Optimal Capital Taxation in an Economy with Innovation-Driven Growth (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:liv:livedp:201913

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