Abstract
| Original language | English |
|---|---|
| Place of Publication | Tilburg |
| Publisher | Macroeconomics |
| Number of pages | 38 |
| Volume | 1997-11 |
| Publication status | Published - 1997 |
Publication series
| Name | CentER Discussion Paper |
|---|---|
| Volume | 1997-11 |
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Keywords
- income tax
- deficit spending
Cite this
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Capital Income Taxation and the Sustainability of Permanent Primary Deficits. / Uhlig, H.F.H.V.S.
Tilburg : Macroeconomics, 1997. (CentER Discussion Paper; Vol. 1997-11).Research output: Working paper › Discussion paper › Other research output
TY - UNPB
T1 - Capital Income Taxation and the Sustainability of Permanent Primary Deficits
AU - Uhlig, H.F.H.V.S.
N1 - Pagination: 38
PY - 1997
Y1 - 1997
N2 - If a government imposes a tax on capital income, it may, as a result, lower the private rate of return on capital below the growth rate of an economy, thereby giving rise to the possibility of running a permanent deficit. Since, however, the before-tax rate of return and not the after-tax rate of return is relevant for judging the dynamical efficiency of the economy, the possibility of a permanent deficit does not by itself imply a possibility for a Pareto-improving redistribution of income. To examine this issue "step by step", we examine in general whether a government can run a deficit forever by rolling over its debt. Assuming the government to run a deficit in each period equal to a constant fraction of total output, we study several overlapping generations models, proceeding from endowment economies to neoclassical growth with a variable capital stock. We then introduce capital income taxation and show, for example, that permanent defcits are feasible in the case of a variable capital stock, provided the capital income tax is sufficiently high. We examine the welfare effects and discuss policy consequences.
AB - If a government imposes a tax on capital income, it may, as a result, lower the private rate of return on capital below the growth rate of an economy, thereby giving rise to the possibility of running a permanent deficit. Since, however, the before-tax rate of return and not the after-tax rate of return is relevant for judging the dynamical efficiency of the economy, the possibility of a permanent deficit does not by itself imply a possibility for a Pareto-improving redistribution of income. To examine this issue "step by step", we examine in general whether a government can run a deficit forever by rolling over its debt. Assuming the government to run a deficit in each period equal to a constant fraction of total output, we study several overlapping generations models, proceeding from endowment economies to neoclassical growth with a variable capital stock. We then introduce capital income taxation and show, for example, that permanent defcits are feasible in the case of a variable capital stock, provided the capital income tax is sufficiently high. We examine the welfare effects and discuss policy consequences.
KW - income tax
KW - deficit spending
M3 - Discussion paper
VL - 1997-11
T3 - CentER Discussion Paper
BT - Capital Income Taxation and the Sustainability of Permanent Primary Deficits
PB - Macroeconomics
CY - Tilburg
ER -