Capital Taxation and Accumulation in a Life Cycle Growth Model

摘要: Almost all of the serious economic work on savings decisions within past decade has relied some variant life cycle hypothesis in which arise out individual choices an optimum lifetime consumption path. This paper reexamines incidence and welfare consequences capital income taxes a realistic model. The results suggest that elimination taxation would have very substantial effects. For example, complete shift to might raise steady-state output by as much 18 percent, 16 percent. long-run gain from such for plausible parameter values exceed $150 billion annually. Stated somewhat differently, shifting utility representative consumer equivalent about six years' new steady state. These estimates dwarf static cost taxation, significantly even extreme previous dynamic loss. study departs earlier analyses effects several respects. Probably most important difference between this treatment preceding ones lies assumptions interest elasticity saving. It is shown below common two-period formulation saving yields quite misleading results. A more model demonstrates that, wide variety values, are elastic. implies away increase formation, making possible increases consumption. Many studies ignored general equilibrium increased formation. In economy with savings, there no presumption undistorted growth path corresponds any sort social optimum. As Peter Diamond shown, can lead intensity either greater or less than Golden Rule level. More generally, it clear reason believe will maximize particular intertemporal function. fundamental tenet evaluation preexisting distortions must be considered evaluating tax changes. presented take explicit account nonoptimal character no-tax explains large part why sizeable effect found. far level intensity, gains achievable through Section I examines aggregate function continuous-time framework. second section clarifies differences wage taxes. An production added third section. changes both final discusses implications suggests areas appear warrant further study. *Assistant professor economics, Massachusetts Institute Technology, research analyst, National Bureau Economic Research. am grateful Alan Auerbach, Martin Feldstein, Laurence Kotlikoff, participants NBER Workshop Business Taxation, Harvard Public Finance Seminar useful discussions. James Poterba Buchal performed numerical calculations.