Optimal taxation, critical-level utilitarianism and economic growth (original) (raw)
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Optimal taxation, critical-level utilitarism and economic growth
2009
In this paper we tackle the issue of optimal taxation in a growing economy in presence of endogenous fertility and critical-level utilitiarian preferences. On the positive side we show that an increase of the tax on the family size increases per capita consumption, decreases the rate of ...
2015
In this work we analyse the issue of optimal taxation and of policy changes in an endogenous growth model driven by public expenditure, in the presence of endogenous fertility and labour supply. While normative analysis confirms the Chamley-Judd result of zero capital income tax, positive analysis reveals that the presence of endogenous fertility produces different results as for the effects of taxes on total employment.
The optimum growth rate for population under critical-level utilitarianism
Journal of Population Economics, 2011
We characterize optimal consumption, capital and population growth rates of a production economy entailed with critical-level utilitarian preferences and endogenous population size. First, we show that, under standard conditions concerning preferences and technology neither classical utilitarianism (CU) nor average utilitarianism (AU) can avoid a corner solution for the population growth rate, in that the former would prescribe that the population grows at the maximum speed (i.e. the so called "repugnant conclusion") while according to the latter such a growth rate should take the minimum value (AU). Critical level utilitarianism (CLU) does deliver an interior solution for the population growth rate provided that the critical level belongs to a positive, open interval. Second, we show that the transition to the steady state is nontrivial, in that, while consumption and capital move in the same direction, as in the standard Cass-Koopmans-Ramsey model, the optimal population growth rate and the time needed for reaching the steady state depend crucially on whether the steady state value of the optimal population growth rate is an interior or a corner solution. Finally, we perform comparative dynamics exercises on the steady state show that: a) A positive technological shock increases both capital and population growth rates, while reduces consumption; b) An increase of the critical level parameter increases consumption, leaves the capital intensity unchanged and decreases the population growth.
The Effect of Endogenous Human Capital Accumulation on Optimal Taxation
SSRN Electronic Journal, 2012
This paper considers the impact of endogenous human capital accumulation on optimal tax policy in a life cycle model. Including endogenous human capital accumulation, either through learning-by-doing or learning-or-doing, is analytically shown to create a motive for the government to use age-dependent labor income taxes. If the government cannot condition taxes on age, then it is optimal to use a tax on capital in order to mimic such taxes. Quantitatively, introducing learning-by-doing or learning-ordoing increases the optimal tax on capital by forty or four percent, respectively. Overall, the optimal tax on capital is thirty five percent higher in the model with learning-by-doing compared to the model with learning-or-doing implying that how human capital accumulates is of significant importance when determining the optimal tax policy.
Optimal Population Growth Without Repugnant Aspects: a Pure Welfarist Approach
2016
We characterize the steady state and the dynamics of an intertemporal economy in presence of optimal fertility. For doing this we propose, and derive from axioms, Relative Critical Level Utilitarianism (building on Blackorby et al. 1995), allowing for critical levels to depend on the previous generation’s wellbeing. In particular, we unveil the conditions under which the long-run effects of technological shocks are not repugnant, neither in Absolute (see Parfit 1984) nor in Relative (see Michel and Pestieau 1998) sense, without imposing any particular structure on the costs for raising children. JEL Classification: D63, D90, E21, J13, O33.
Optimal Capital Taxation in a Neoclassical Growth Model
Journal of Public Economic Theory, 2015
This paper studies the optimal factor tax incidence in a neoclassical growth model with a given share of government expenditure in output. In the Ramsey planner's optimization, the effect of next period's capital on government expenditure equals the given share of the marginal product of capital. Capital accumulation reduces the discounted net marginal product of next period's capital by way of increasing government expenditure. In order to internalize the distortion, it is optimal to tax capital income in the long run.
Optimal taxation and discount rate for public investment in a growth setting
Journal of Public Economics, 1974
This paper studies the optimal policy of a government which maximizes intertemporal social welfare using such instruments as taxes on interest income and wages, and debt in conjunction wdth public investment. In doing so, it has to face a decentralized economy where in each generation individuals and firms are free to maximize their own objectives subject to their own private constraints. The welfare function is a sum of discounted generational utilities and its maximization is handled by using dynamic programming. From the first order conditions so derived, it appears that an optimal policy of taxation and public capital accumulation is that which sets the tax rates according to Ramsey's optimal taxation structure and which equates the rate of return on public investment to the rate of social time preference. *This paper is based upon a chapter of my dissertation written under Joseph Stiglitz and Alvin Klevorick to whom I would like to express my gratitude. I also wish to thank A.B. Atkinson, U. Possen and S. Slutsky for comments and criticisms. 'See, for example, Baumol(l968).
Income Taxation and Finite Horizons in a Human Capital Model
2000
We address the issue of capital vs. labor income taxation in an overlapping generations model with a positive externality in the human capital production. We compare the performance of the economy in the steady state under different tax policies. Three results are obtained. First, the size of the tax revenue required strongly affects the optimal (welfare maximizing) capital-labor income tax portfolio. In particular, a zero physical capital income tax rate need not be optimal. Second, the way in which the finite life cycle is split between the working and the retirement period also matters. And third, the size of the externality in the human capital production also affects the optimal income tax rate mix.
OPTIMAL FISCAL AND TAX POLICIES IN A GENERAL EQUILIBRIUM MODEL OF GROWTH
2004
Abstract: This paper continues the study of optimal second-best economic policy in a growing general equilibrium economy. It considers the case in which a benevolent Ramseytype government chooses optimally the income tax rate, as well as the allocation of the collected tax revenue among public consumption services, public investment and transfer payments. It then studies the properties of the chosen policies and their implications for the macro economy. Keywords: Second-best policy; Growth; General equilibrium.