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Taxing or subsidizing Factors' rents in a simple endogenous growth model with public capital

Gustavo Marrero () and Alfonso Novales ()

Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: This paper tackles the fundamental issue in public finance of wether taxing or subsidizing factor rents. In a one sector endogenous growth model with private and public capital, similar to that in Barro (1990),we find that raising taxes on factors’ income as part of an optimal fiscal policy is a more pervasive result than it seems. The interaction of technological and fiscal externalities is central for this result. For instance, high enough levels of wasteful expenditures to output ratio could make positive income taxes enhance welfare. This ratio would need to be smaller, the lower the spillover externality and/or the larger the elasticities of private and public capital in the private production function.

Keywords: Endogenous growth; Factors’ rents subsidy; Distorting taxes; Public capital. (search for similar items in EconPapers)
JEL-codes: E0 E6 O4 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2003
New Economics Papers: this item is included in nep-pub
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