Optimal taxation in a growth model with public consumption and home production

Jie Zhang, James Davies, Jinli Zeng, Stuart McDonald

Research output: Journal PublicationArticlepeer-review

7 Citations (Scopus)

Abstract

In a neoclassical growth model with public consumption, we show the following Pareto optimal tax rules. The government should tax leisure and private consumption at the same rate, and subsidize net investment at the same rate it taxes net capital income. Also, it should tax capital income more heavily than labor income. In an extension for home production, the additional rule is to tax investment for home production at the same rate of the tax on private market consumption. These tax and subsidy rates should be constant over time except the initial tax rate on capital income.

Original languageEnglish
Pages (from-to)885-896
Number of pages12
JournalJournal of Public Economics
Volume92
Issue number3-4
DOIs
Publication statusPublished - Apr 2008
Externally publishedYes

Keywords

  • Home production
  • Investment
  • Optimal taxation
  • Public consumption

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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