This paper quantitatively investigates the optimal capital income taxation in the general equilibrium overlapping generations model, which incorporates characteristics of housing and the U.S. preferential tax treatment for owner-occupied housing. Housing tax policy is found to have a substantial effect on how capital income should be taxed. Given the U.S. preferential tax treatment for owner-oc...

Abstract T he return of capital is fundamental to the intertemporal allocation of resources by changing the consumption behavior and capital accumulation over time. Taxation on return of capital increases the marginal product of capital, meaning that capital stock is lower than when capital is not taxed, which results decreased growth and welfare in steady state. This pape...

In this paper, we study optimal tax policy in a dynamic private information economy. We describe efficient allocations and competitive equilibria. The standard assumption in the literature is that trades are observable by all agents. We show that in such an environment the competitive equilibrium is efficient and that government consumption can be financed by lump-sum taxation. We go on to cons...

T he literature concerned with dynamic fiscal policy has evolved in two main directions over the last 20 years or so. On the one hand, there is a large literature on optimal taxation. In the context of a standard neoclassical growth model with infinitely-lived individuals, Chamley (1986) and Judd (1985) establish that an optimal income-tax policy entails taxing capital at confiscatory rates in ...

The impact of pollution and abatement policy within a stochastic endogenous growth model is analyzed. Environmental care is provided by the government and financed through income taxation and government bonds. Due to environmental preferences and partial perception of the individual’s impact on pollution, government debt influences equilibrium growth. Hence, there is an additional growth effect...

In this paper I show that, in economies characterized by tax evasion and endogeneity of government spending, the qualitative characterization of the optimal factor income taxes depends on both these factors. In particular, the well known Chamley Judd result that, in the long run, tax rates on capital income should be zero is, in many cases, overturned. It is shown that the nature of tax evasion...

Optimal international taxation and its implications for convergence in long run income growth rates are analyzed in the context of an endogenously growing world economy with perfect capital mobility. Under tax competition (i) the residence principle will maximize national welfare; (ii) the optimal long run tax rate on capital incomes from various sources will be zero in all countries; and (iii)...

Dynamic computable general equilibrium (CGE) models, such as the MONASH model developed at the Centre of Policy Studies, typically use complex dynamic investment mechanisms to generate dynamic growth paths. Even so, these models don’t account for corporate finance and corporate taxation in determining investment outcomes. This paper provides final results from a work program aimed at imposing c...

The United States relies for its government revenues more on the taxation of capital relative to the taxation of labor than countries in continental Europe do. In this paper we ask what can account for this. Our approach is to look at Markov perfect equilibria of a two– country growth model where both governments use labor, capital and corporate taxes to finance exogenously given streams of pub...