Abstract
In a closed economy, the infinite-horizon and the overlapping generations (OG) model prescribe diametrically opposite policies on factor taxation: the former argues that the growth-maximizing capital income tax rate should be set to zero, whereas the latter argues that it should be set as high as possible. This note investigates the issue by taking into account global capital market integration. We show that the long-run growth-maximizing capital income tax rate in a small open OG economy is decreasing as the economy’s capital market is increasingly integrated with the rest of the world, and will be equal to zero as prescribed in the infinite-horizon model once the degree of integration becomes sufficiently high.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
