Ho, Wai-Hong and Wang, Yong (2009): Capital Income Taxation Revisited: The Role of Information Asymmetry in the Credit Market.
Download (142Kb) | Preview
This paper reexamines the issue of optimal capital income taxation in an endogenous growth model with overlapping generations. By assuming costly state verification for capital producing projects, we show that the presence of the information asymmetry creates inefficiency in the credit market by driving a wedge between the rate of interest and the rate of transformation. In this context, we further show that capital income taxation worsens the credit market distortions and, subsequently, induces greater adverse effects on growth and welfare. Taken together, our analysis suggests that the presence of informational frictions in the credit market introduces a rationale for more conservative taxation on capital income from both growth and welfare perspectives.
|Item Type:||MPRA Paper|
|Original Title:||Capital Income Taxation Revisited: The Role of Information Asymmetry in the Credit Market|
|Keywords:||Capital income taxation; Asymmetric information; Economic growth|
|Subjects:||H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency; Optimal Taxation
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information; Mechanism Design
|Depositing User:||Wai-Hong Ho|
|Date Deposited:||01. Sep 2009 07:53|
|Last Modified:||12. Feb 2013 18:59|
Barro, R., 1990. “Government spending in a simple model of endogenous growth.” Journal of Political Economy 98, S103-S125.
Bencivenga, V.R., Smith, B.D., 1993. “Some consequences of credit rationing in an endogenous growth model.” Journal of Economic Dynamics and Control 17, 97-122.
Bernake, B., Gertler, M., 1989. “Agency cost, net worth and business fluctuations.” American Economic Review 79, 14-31.
Caballé, J., 1998. “Growth effects of taxation under altruism and low elasticity of intertemporal substitution.” Economic Journal 108, 92-104.
Chamley, C., 1986. “Optimal taxation of capital income in general equilibrium with infinite lives.” Econometrica 54, 607-622.
Chen, Been-Lon, 2007. “Factor taxation and labor supply in a dynamic one-sector growth model.” Journal of Economic Dynamics and Control 31(12), 3941-3964.
Futagami, K., Morita, Y., Shibata, A. 1993. “Dynamic analysis of an endogenous growth model with public capital.” Scandinavian Journal of Economics 95, 607-625.
Gale, D., M. Hellwig. 1985. “Incentive compatible debt contracts: the one period problem.” Review of Economic Studies 52: 647-663.
Ho, W.H., Wang, Y., 2007. “Factor income taxation and growth under asymmetric information.” Journal of Public Economics 91, 775-789.
Jacobs, B., Bovenberg, A.L., 2004. “Optimal capital income taxation with endogenous human capital formation.” Manuscript.
Jones, L.E., Manuelli, R.E., 1992. “Finite lifetimes and growth.” Journal of Economic Theory 58, 171-197.
Jones, L.E., Manuelli, R.E., Rossi, P.E., 1997. “On the optimal taxation of capital income.” Journal of Economic Theory 73, 93-117.
Joydeep, B., 1998. “Credit market imperfections, income distribution and capital accumulation.” Economic Theory 11, 171-200.
Judd, K.L., 1985. “Redistributive taxation in a simple perfect foresight model.” Journal of Public Economics 28, 59-83.
Lau, S.H. Paul, 1995. “Welfare-maximizing vs. growth-maximizing shares of government investment and consumption.” Economic Letters 47, 351-359.
Lucas, R.E., 1990. “Supply-side economics: an analytical review.” Oxford Economic Papers 42, 293-316.
Milesi-Ferretti, G.M., Roubini, N., 1998. “On the taxation of human and physical capital in models of endogenous growth.” Journal of Public Economics 70, 237--254.
Pecorino, P., 1993. “Tax structure and growth in a model with human capital.” Journal of Public Economics 52, 251-271.
Penalosa, C.G., Turnovsky, S.J., 2005. “Second-best optimal taxation of capital and labor in a developing economy.” Journal of Public Economics 89, 1045-1074.
Rebelo, S., 1991. “Long run policy analysis and long run growth.” Journal of Political Economy 99, 500-521.
Uhlig, H., Yanagawa, N., 1996. “Increasing the capital income tax may lead to faster growth.” European Economic Review 40, 1521-1540.
Williamson, S.D. 1986. “Costly monitoring, financial intermediation, and equilibrium credit rationing.” Journal of Monetary Economics 18. 159-179.
Yakita, A., 2003. “Taxation and growth with overlapping generations.” Journal of Public Economics 87, 467-487.