Optimal Taxation of Capital Income in Models with Endogenous Fertility

Petrucci, Alberto (2007) Optimal Taxation of Capital Income in Models with Endogenous Fertility. [Working Paper]. Centro studi Luca D'Agliano. p. 29.

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This paper studies the issue of the efficient taxation of capital income in intertemporal optimizing models with infinite horizons and endogenous population growth. We discover that, in the steady state, the optimal capital income tax is negative when the economy is closed. Instead, in a small open economy facing perfect capital mobility, the Chamley-Judd result of a zero tax rate is obtained if capital taxation is source-based; otherwise, income from wealth should be subsidized if taxation is residence-based. Moreover, we find that in our setup, taxing capital income with immediate expensing of capital expenditure may replicate the first-best equilibrium when labor is subsidized. Our findings, which depart substantially from those obtained in representative agent models with an endogenous labor supply, are to be ascribed to a wealth effect in the fertility choices that directly affects the pseudo-welfare function of the social planner.

Item Type:Report / Paper (Working Paper)
Research documents and activity classification:Working Papers > Non-Refereed Working Papers / of national relevance only
Divisions:Department of Business and Management
Uncontrolled Keywords:Factor income taxes. Second-best analysis. Endogenous population growth. Capital formation. Tassazione. Formazione del capitale. Crescita della popolazione.
MIUR Scientific Area:Area 13 - Economics and Statistics > SECS-P/01 Political Economy
Deposited By:Silvia Capobianchi
Deposited On:14 Jul 2009 08:38
Last Modified:08 Feb 2013 21:35

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