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A Case Against Zero Capital-Income Taxation

Author

Listed:
  • Darong Dai

    (School of Economics, Nanjing University, Nanjing 210093, China)

  • Kunrong Shen

    (School of Economics, Nanjing University, Nanjing 210093, China)

  • Ruihua Ma

    (School of Management, Nanjing University, Nanjing 210093, China)

Abstract

This paper develops a dynamic general equilibrium model to investigate the optimal level of capital income taxation in light of stochastic endogenous economic growth. Although endogenous human capital is incorporated into our model, we restrict our investigation to the issue of optimal physical capital income tax; and the labor supply is also endogenously determined. This paper proves that the optimal capital income tax should be zero provided exogenous government expenditure on production; however, capital income should be taxed if we consider endogenous government consumption.

Suggested Citation

  • Darong Dai & Kunrong Shen & Ruihua Ma, 2013. "A Case Against Zero Capital-Income Taxation," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 8(1), pages 64-90, March.
    • Handle: RePEc:fec:journl:v:8:y:2013:i:1:p:64-90
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-002-013-0004-4
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    Citations

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    Cited by:

    1. Darong Dai, 2013. "Wealth Martingale and Neighborhood Turnpike Property In Dynamically Complete Market With Heterogeneous Investors," Economic Research Guardian, Weissberg Publishing, vol. 3(2), pages 86-110, December.
    2. Dai, Darong, 2011. "Wealth Martingale and Neighborhood Turnpike Property in Dynamically Complete Market with Heterogeneous Investors," MPRA Paper 46416, University Library of Munich, Germany.

    More about this item

    Keywords

    stochastic endogenous growth; endogenous labor supply; endogenous human capital; optimal capital income taxation; endogenous government consumption; governmental altruism;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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