Optimal Factor Taxation in a Scale Free Model of Vertical Innovation

36 Pages Posted: 20 May 2020

See all articles by Barbara Annicchiarico

Barbara Annicchiarico

University of Rome, Tor Vergata - Department of Economics and Finance; University of Rome Tor Vergata - Centre for International Studies on Economic Growth (CEIS)

Valentina Antonaroli

Economic Analysis Department, Central Bank of Malta

Alessandra Pelloni

University of Rome Tor Vergata, Department of Economics and Finance, Students

Date Written: May 13, 2020

Abstract

The objective of the paper is to study how the tax burden arising from an exogenous stream of public expenditures and transfers should be distributed between labor and capital in a scale-less endogenous growth model, where the engine of growth are successful innovations. Our laboratory is a prototypical quality ladder model with a labor/leisure choice where R&D productivity is decreasing in the size of the economy. This decreasing productivity removes scale effects, which are a controversial prediction of first-generation endogenous growth models. Our contribution is to show that even when labor supply has no effects on growth in the long run, it will still be optimal to tax capital, for reasonable parametrizations of the model. This is true even if the long-run growth rate decreases, with respect to the initial situation in which capital income is not taxed.

Keywords: Endogenous growth, Scale effects, Capital Income Taxation, Welfare effect.

JEL Classification: O41, E62, H21

Suggested Citation

Annicchiarico, Barbara and Antonaroli, Valentina and Pelloni, Alessandra, Optimal Factor Taxation in a Scale Free Model of Vertical Innovation (May 13, 2020). CEIS Working Paper No. 485, Available at SSRN: https://ssrn.com/abstract=3600116 or http://dx.doi.org/10.2139/ssrn.3600116

Barbara Annicchiarico (Contact Author)

University of Rome, Tor Vergata - Department of Economics and Finance ( email )

Rome, I-00133
Italy

University of Rome Tor Vergata - Centre for International Studies on Economic Growth (CEIS) ( email )

Via Columbia, 2
Rome, I-00133
Italy

Valentina Antonaroli

Economic Analysis Department, Central Bank of Malta ( email )

MT
Malta

Alessandra Pelloni

University of Rome Tor Vergata, Department of Economics and Finance, Students ( email )

Rome
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
30
Abstract Views
408
PlumX Metrics