Generational incidence of savings taxation versus capital-income taxation |
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Authors: | Alan Krause |
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Institution: | Department of Economics, University of York, Heslington, UK. Email: |
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Abstract: | This paper examines the incidence of capital taxation in a model in which the taxation of capital is clearly justifiable and using analytical techniques from the tax reform literature. The taxation of capital has long been a controversial issue, with much of the literature concluding that savings/capital-income should not be taxed. Recently, however, Blackorby and Brett have shown in a model with several desirable features that it can be optimal to tax capital, and they provide a simple yet compelling argument in favor of both savings taxation and capital-income taxation. We use the Blackorby–Brett model (i.e. a model in which the taxation of capital can be justified) to revisit the question of the incidence of capital taxation. We focus on the generational incidence of capital taxation; that is, the incidence on a young generation and an old generation. However, an interpretation in terms of the incidence on "capital" versus "labor" (as is traditional in the tax incidence literature) is also provided. |
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Keywords: | capital taxation tax incidence generational policy second best |
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