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Optimal Capital Taxation and Debt Policy in a Finite-Horizon Macro Model

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  • Stephen Mccafferty

    (The Ohio State University)

Abstract

This article analyzes optimal taxation and debt policies in a model of overlapping generations of finite-lived agents. Taxes are levied proportionately on capital and labor incomes. Tax rates are uniform across all agents. When the social and private discount rates coincide, the optimal steady-state tax rate on capital income is zero. Alternatively, the optimal steady-state tax rate on capital income is positive (or negative), and the optimal steady-state level of government debt is larger (or smaller) whenever the social discount rate is greater (or less) than the private discount rate.

Suggested Citation

  • Stephen Mccafferty, 1997. "Optimal Capital Taxation and Debt Policy in a Finite-Horizon Macro Model," Public Finance Review, , vol. 25(6), pages 577-600, November.
    • Handle: RePEc:sae:pubfin:v:25:y:1997:i:6:p:577-600
    DOI: 10.1177/109114219702500602
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    References listed on IDEAS

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