Optimal Capital Income Taxation with Means-Tested Benefits

CAMA Working Paper 21/2012

28 Pages Posted: 4 Jun 2012

See all articles by Cagri S. Kumru

Cagri S. Kumru

Australian National University (ANU)

John Piggott

University of New South Wales (UNSW) - Australian School of Business, School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 3, 2012

Abstract

This paper studies the interaction between capital income taxation and a means tested age pension in the context of an overlapping generations model, calibrated to the UK economy. Recent literature has suggested a rehabilitation of capital income taxation (Conesa et al. (2009)), predicated on the idea that capital is a complement with retirement leisure. This leads naturally to the conjecture that a publicly funded age pension contingent upon holdings of capital or capital income may have a similar effect. We formalize this using a stochastic OLG model with multiple individuals differentiated by labour productivity and pension entitlement. Our preliminary findings suggest that a means tested pension has effects similar to capital income taxation in a life-cycle context.

Keywords: Dynamic general equilibrium, taxation, welfare

JEL Classification: E21, E62, H55

Suggested Citation

Kumru, Cagri S. and Piggott, John, Optimal Capital Income Taxation with Means-Tested Benefits (June 3, 2012). CAMA Working Paper 21/2012. Available at SSRN: https://ssrn.com/abstract=2074694 or http://dx.doi.org/10.2139/ssrn.2074694

Cagri S. Kumru (Contact Author)

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

John Piggott

University of New South Wales (UNSW) - Australian School of Business, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

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