Abstract
Imperfect altruism between generations may lead to insufficient capital accumulation. We study the welfare consequences of taxing the rent on a fixed production factor, such as land, in combination with age-dependent redistributions as a remedy. Taxing rent enhances welfare by increasing capital investment. This holds for any tax rate and recycling of the tax revenues except for combinations of high taxes and strongly redistributive recycling. We prove that specific forms of recycling the land rent tax --- a transfer directed at fundless newborns or a capital subsidy --- allow reproducing the social optimum under parameter restrictions valid for most economies.
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