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Taxing or subsidizing factors' rents in a simple endogenous growth model with public capital

Marrero, Gustavo A. and Novales Cinca, Alfonso (2003) Taxing or subsidizing factors' rents in a simple endogenous growth model with public capital. [Working Paper or Technical Report]


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This paper tackles the fundamental issue in public finance of wether taxing or subsidizing factor rents. In a one sector endogenous growth model with private and public capital, similar to that in Barro (1990), we find that raising taxes on factors’ income as part of an optimal
fiscal policy is a more pervasive result than it seems. The interaction of technological and fiscal externalities is central for this result. For instance, high enough levels of wasteful expenditures to output ratio could make positive income taxes enhance welfare. This ratio would need to be smaller, the lower the spillover externality and/or the larger the elasticities of private and public capital in the private production function.

Item Type:Working Paper or Technical Report
Additional Information:JEL Classification: E0, E6, O4
Uncontrolled Keywords:Endogenous growth, Factors’ rents subsidy, Distorting taxes, Public capital
Subjects:Social sciences > Economics > Macroeconomics
Series Name:Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE)
ID Code:7702

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Deposited On:10 Mar 2008
Last Modified:06 Feb 2014 07:55

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