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Financing Social Security by Taxing Capital Income – A Bad Idea?

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  • Kunze, Lars
  • Schuppert, Christiane

Abstract

This paper examines the growth effects of an increase of capital income taxes with additional revenue being devoted to cut wage-related social security contributions to reduce unemployment. The analysis is carried out in an overlapping generations model with endogenous growth, unemployment and a social security system comprising pensions and unemployment benefits. It is shown that the reform not only promotes employment but may additionally stimulate economic growth. Calibrating the model to match data for the EU15 reveals that European countries can indeed gain in form of higher employment and growth if the initial capital income tax is not too high.

Suggested Citation

  • Kunze, Lars & Schuppert, Christiane, 2009. "Financing Social Security by Taxing Capital Income – A Bad Idea?," Ruhr Economic Papers 90, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:90
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    References listed on IDEAS

    as
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    Cited by:

    1. Chih-Wen Mao, 2016. "Growth, income inequality, and capital income taxes: evidence from a seemingly unrelated regression model on panel data," Economics Bulletin, AccessEcon, vol. 36(3), pages 1463-1478.
    2. Watanabe, Minoru & Miyake, Yusuke & Yasuoka, Masaya, 2019. "Capital income taxation in endogenous fertility model," MPRA Paper 97721, University Library of Munich, Germany.
    3. Minoru Watanabe, 2021. "A note on capital income taxation with involuntary unemployment," Discussion Papers 2126, Graduate School of Economics, Kobe University.
    4. Mahdi Amini, 2017. "The Relationship Between Beauty and Metaphysics in the Theory of Saint Tomas Aquinas," European Journal of Multidisciplinary Studies Articles, Revistia Research and Publishing, vol. 2, ejms_v2_i.
    5. Minoru Watanabe, 2023. "Capital income taxation and trade unions in an endogenous fertility model," Discussion Papers 2302, Graduate School of Economics, Kobe University.
    6. Minoru Watanabe, 2021. "Tax reform, unemployment, and fertility," Discussion Papers 2128, Graduate School of Economics, Kobe University.

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    More about this item

    Keywords

    Capital income taxation; social security; imperfect labor market; overlapping generations; growth;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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