On the Incidence of a Tax on Pure Rent with Infinite Horizons

Petrucci, Alberto (2004) On the Incidence of a Tax on Pure Rent with Infinite Horizons. [Working Paper]. p. 19. Fondazione Eni Enrico Mattei Working Paper Series (No. 2004.160). (Submitted)

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Abstract/Index

This paper studies the incidence of a tax on pure rent within an intertemporal optimizing model of capital accumulation and endogenous labor with infinite-lived agents. Two cases are considered for the labor market: the neoclassical theory, characterized by perfectly competitive wages and no unemployment, and the incentive-wage theory of the labor-turnover type, characterized by real wage rigidity and structural unemployment. In the neoclassical equilibrium, the land rent tax is unshifted when consumers are lump-sum compensated for the tax. If tax revenues are used to finance government spending, pure rent taxation increases employment, boosts capital accumulation and reduces real wage as well as land yield. In the incentive-wage economy, the land rent tax, regardless of the way in which tax proceeds are employed, always increases employment, capital stock, and land reward, but exerts an ambiguous effect on the wage rate.This paper studies the incidence of a tax on pure rent within an intertemporal optimizing model of capital accumulation and endogenous labor with infinite-lived agents. Two cases are considered for the labor market: the neoclassical theory, characterized by perfectly competitive wages and no unemployment, and the incentive-wage theory of the labor-turnover type, characterized by real wage rigidity and structural unemployment. In the neoclassical equilibrium, the land rent tax is unshifted when consumers are lump-sum compensated for the tax. If tax revenues are used to finance government spending, pure rent taxation increases employment, boosts capital accumulation and reduces real wage as well as land yield. In the incentive-wage economy, the land rent tax, regardless of the way in which tax proceeds are employed, always increases employment, capital stock, and land reward, but exerts an ambiguous effect on the wage rate.


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:Pure rent taxation, Capital formation, Land, Structural unemployment
MIUR Scientific Area:Area 13 - Economics and Statistics > SECS-P/01 Political Economy
Deposited By:Maria Teresa Nistico
Deposited On:13 Dec 2010 15:37
Last Modified:13 Dec 2010 18:09

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