Capital Income Tax, Linear R&D Technology, and Economic Growth

Tenryu, Yohei (2017): Capital Income Tax, Linear R&D Technology, and Economic Growth.

Abstract

This paper shows that, in a R&D-based growth model in which vertical and horizontal innovations occur simultaneously, increasing the capital income tax leads to faster growth. For this result to hold, the production function for both vertical and horizontal innovations must have constant returns to scale.

• Item Type: MPRA Paper
• Language: English
• Keywords: Endogenous growth, Capital income tax, Vertical innovation, Horizontal Innovation, Scale effect.
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J22 - Time Allocation and Labor Supply; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

References

Chamley, C. (1986), "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, 54, 607-622.

Chen, B. -L. and Lu, C. -H. (2013), "Optimal Factor Tax Incidence in Two-sector Human Capital-based Models," Journal of Public Economics, 97, 75-94.

Conesa, J. C., Kitao, S., and Krueger, D. (2009), "Taxing Capital? Not a Bad Idea After All!," American Economic Review, 99, 25-48.

De Hek, P. A. (2006), "On Taxation in a Two-sector Endogenous Growth Model with Endogenous Labor Supply," Journal of Economic Dynamics and Control, 30, 655-685.

Dinopoulos, E. and Thompson, P. (1998), "Schumpeterian Growth without Scale Effects," Journal of Economic Growth, 3, 313-335.

Hiraguchi, R. and Shibata, A. (2015), "Taxing Capital is a Good Idea: The Role of Idiosyncratic Risk in an OLG Model," Journal of Economic Dynamics, and Control, 52, 258-269.

Jones, L. E., Manuelli, R. E., and Rossi, P. E. (1993), "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, 101, 485-517.

Judd, K. L. (1985), "Redistributive Taxation in a Simple Perfect Foresight Model," Journal of Public Economics, 28, 59-83.

Peretto, P, F. (2003), "Fiscal Policy and Long-run Growth in R\&D-based Models with Endogenous Market Structure," Journal of Economic Growth, 8, 325-347.

Uhlig, H. and Yanagawa, N. (1996), "Increasing the Capital Income Tax may Lead to Faster Growth," European Economic Review, 40, 1521-1540.

Young, A. (1998), "Growth without Scale Effects," Journal of Political Economy, 106, 41-63.