Optimal income taxation in models with endogenous fertility

Journal of Macroeconomics, 2015, vol. 43, issue C, 216-225

Abstract: This paper studies the efficient taxation of factor income in infinite-lived models with elastic fertility choices. Two models are considered, one with physical capital only, and one with physical and human capital. In the model with physical capital only, capital income should be subsidized, while labor income taxed. In the model with two types of capital, instead, Ramsey optimality prescribes that the tax on physical capital is zero (negative), if effective labor is constant (decreasing) returns to scale in human capital and market goods, while the tax on human capital is negative and the tax on effective labor positive. Our findings depart from those obtained in immortal models with an endogenous labor supply and constant population growth, because physical and human capital affect the demand for fertility.

Keywords: Factor income taxes; Second-best analysis; Endogenous population growth; Physical capital; Human capital (search for similar items in EconPapers)
JEL-codes: E62 H22 J22 O41 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:43:y:2015:i:c:p:216-225

DOI: 10.1016/j.jmacro.2014.12.001

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