Capital Income Taxation and Long Run Growth: New PerspectivesWe study the effects of capital income taxation on long run growth in an endogenous growth framework with two distinguishing features: endogenous population and international capital mobility. Endogenizing population growth introduces a new channel for taxes to affect economic growth and enables us to discriminate the effects of taxes on total versus per capita income growth. Allowing for capital mobility in the open economy, we show how the effects of taxes on population growth and income growth across countries will vary in specific ways, depending on the international income tax regimes and the relative preference bias of people towards the 'quantity' and 'quality' of children. The numerical results based on our calibrated model for the G-7 also indicate that, although the effects of liberalizing capital flows on long run growth may not be very sizable, the growth effects of changes in capital income tax rates can be tremendously magnified by cross-border capital flows and cross-border spillovers of policy effects. |
Other editions - View all
Common terms and phrases
after-tax rate Altruism asymmetry autarky balanced growth path calibrated model capita income growth capital accumulation capital controls capital formation capital income earned capital income tax capital mobility capital tax rates capital taxation child quantity closed economy Consumption tax rate cross-border capital flows discount factor domestic-source capital income effects of capital effects of taxes eigenvalues endogenous population equal across countries equilibrium exogenous exogenous population growth foreign-source capital income G-6 residents human capital formation human capital production implies income growth rates income tax rate income taxation investment Journal of Political K₁ Labor income tax long run growth open economy Output share parameter values physical capital policy variables Population growth rate production coefficient productivity parameter rates of return Rebelo residence principle residents of country residents Tax rate return on capital source principle steady state equations steady state growth tax changes tax principle tax-growth relation total income growth