Factor Income Taxation in a Horizontal Innovation Model

Xin Long and Alessandra Pelloni
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Xin Long: African Development Bank Group

No 273, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: We consider the optimal factor income taxation in a standard R&D model with technical change represented by an increase in the variety of intermediate goods. Redistributing the tax burden from labor to capital will in most cases increase the employment rate in equilibrium. This has opposite effects on two distortions in the model, one due to monopoly power, the second to the incomplete appropriability of the benefits of inventions. Their relative momentum determines the sign of the welfare effect of the redistribution. We show that, for parameter values consistent with available estimates, the optimal tax rate on capital will be sizable.

Keywords: Capital Income Taxes; R&D; Growth Effect; Welfare Effect. (search for similar items in EconPapers)
JEL-codes: E62 H21 O41 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2013-04-19, Revised 2013-04-19
New Economics Papers: this item is included in nep-acc, nep-ino, nep-mac, nep-pbe and nep-pub
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Journal Article: Factor income taxation in a horizontal innovation model (2017)
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