Capital Income Taxation and Long Run Growth: New Perspectives

34 Pages Posted: 20 Jul 2000 Last revised: 29 Sep 2022

See all articles by Assaf Razin

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Chi-Wa Yuen

The University of Hong Kong - School of Economics and Finance

Date Written: February 1995

Abstract

We study the effects of capital income taxation on long run growth in an endogenous growth framework with two distinguishing features: endogenous population and international capital mobility. Endogenizing population growth introduces a new channel for taxes to affect economic growth and enables us to discriminate the effects of taxes on total versus per capita income growth. Allowing for capital mobility in the open economy, we show how the effects of taxes on population growth and income growth across countries will vary in specific ways, depending on the international income tax regimes and the relative preference bias of people towards the 'quantity' and 'quality' of children. The numerical results based on our calibrated model for the G-7 also indicate that, although the effects of liberalizing capital flows on long run growth may not be very sizable, the growth effects of changes in capital income tax rates can be tremendously magnified by cross-border capital flows and cross-border spillovers of policy effects.

Suggested Citation

Razin, Assaf and Yuen, Chi-Wa, Capital Income Taxation and Long Run Growth: New Perspectives (February 1995). NBER Working Paper No. w5028, Available at SSRN: https://ssrn.com/abstract=225807

Assaf Razin (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

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Chi-Wa Yuen

The University of Hong Kong - School of Economics and Finance ( email )

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