Pure rent taxation and allocation of capital in a two-sector open economy: A long-run analysis |
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| Institution: | 1. Department of Management, Università Politecnica delle Marche, Ancona, Italy;2. Department of Economics and Social Science, Università Politecnica delle Marche, Ancona, Italy;1. Department of Financial Engineering, Ajou University, Suwon, 16499, Republic of Korea;2. Department of Applied Mathematics & Institute of Natural Science, Kyung Hee University, Yongin, 17104, Republic of Korea;3. Department of Mathematical Sciences, Seoul National University, Seoul, 08826, Republic of Korea;1. CREM UMR 6211, Université de Caen Normandie, France;2. ICN Business School-CEREFIGE, Nancy, France;1. Texas A&M University, Department of Finance, Mays Business School, College Station, TX, 77843, USA;2. University of Valladolid (Spain), NRU Higher School of Economics (Russia), School of Business and Economics, Avda. Valle Del Esgueva 6, 47011, Valladolid, Spain;3. University of Valladolid, School of Business and Economics, Avda. Valle Del Esgueva 6, 47011, Valladolid, Spain;1. Dipartimento di Scienze Dell’Economia, Università Del Salento, Complesso Ecotekne, Strada per Monteroni, 73100 Lecce, Italy;2. Research Fellow at CESifo (Center for Economic Studies and the Ifo Institute), Munich and Dipartimento di Scienze Dell’Economia, Università Del Salento, Complesso Ecotekne, Strada per Monteroni, 73100 Lecce, Italy |
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| Abstract: | In this paper, the long-run incidence of a tax on pure rent is analyzed in an OLG two-sector small open economy, in which one sector produces a capital good and one sector a consumer good. Contrary to what is obtained in a one-sector closed economy, a land rent tax does not necessarily foster nonhumam wealth accumulation and capital formation. The accommodating scheme for the government budget plays a crucial role for the effects of pure rent taxation. A rent tax stimulates nonhuman wealth if distortionary taxes on wealth or on income from nonland inputs are alleviated. The mechanism spurring capital formation is brought into action, instead, only when the rent tax is matched by a fall in capital taxation or, if the capital sector is capital intensive, by an increase in government spending on the capital good. |
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| Keywords: | Land rent tax Capital good Consumer good OLG Wealth accumulation E62 H22 J22 O41 |
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