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American Economic Review: Vol. 100 No. 1 (March 2010)

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Demographics and the Politics of Capital Taxation in a Life-Cycle Economy

Article Citation

Mateos-Planas, Xavier. 2010. "Demographics and the Politics of Capital Taxation in a Life-Cycle Economy." American Economic Review, 100(1): 337-63.

DOI: 10.1257/aer.100.1.337

Abstract

This article studies the effects of demographics on the mix of tax rates on labor and capital. It uses a quantitative general-equilibrium, overlapping-generations model where tax rates are voted without past commitments in every period and characterized as a Markov equilibrium. In the United States, the younger voting-age population in 1990 compared to 1965 accounts for the observed decline in the relative capital tax rate between those two years. A younger population raises the net return to capital, leads voters to increase their savings, and results in a preference for lower taxes on capital. Conversely, aging might increase capital taxation. (JEL E13, H24, H25, J11)

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Authors

Mateos-Planas, Xavier (U Southampton)

JEL Classifications

E13: General Aggregative Models: Neoclassical
H24: Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
H25: Business Taxes and Subsidies including sales and value-added (VAT)
J11: Demographic Trends and Forecasts; General Migration


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