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Capital depreciation allowances, redistributive taxation, and economic growth

Rehme, Günther (2023)
Capital depreciation allowances, redistributive taxation, and economic growth.
In: Journal of Public Economic Theory, 2020, 25 (1)
doi: 10.26083/tuprints-00023719
Article, Secondary publication, Publisher's Version

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Item Type: Article
Type of entry: Secondary publication
Title: Capital depreciation allowances, redistributive taxation, and economic growth
Language: English
Date: 28 April 2023
Place of Publication: Darmstadt
Year of primary publication: 2020
Publisher: Wiley
Journal or Publication Title: Journal of Public Economic Theory
Volume of the journal: 25
Issue Number: 1
DOI: 10.26083/tuprints-00023719
Corresponding Links:
Origin: Secondary publication DeepGreen

Are capital depreciation allowances when coupled with capital income taxes good instruments for redistribution in the long run? In a simple two‐agent‐economy I find that accelerated depreciation is good for growth, but bad for redistribution. The opposite holds for capital income taxes. However, in a feedback Stackelberg equilibrium, where the government is the leader and the private sector the follower, the depreciation allowance is maximal in the long run, time‐consistent optimum. This removes the accumulation distortion of capital income taxes. Furthermore, the latter, and so redistribution, is found to be generically nonzero in the time‐consistent optimum, and depends on the social weight of transfers receivers, the pretax factor income distribution, the intertemporal elasticity of substitution and the time preference rate. Thus, accelerated depreciation allowances are an important indirect tool for redistribution. The tax scheme allows for a separation of "efficiency" and "equity" concerns for redistributive policies.

Status: Publisher's Version
URN: urn:nbn:de:tuda-tuprints-237198
Classification DDC: 300 Social sciences > 330 Economics
Divisions: 01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete > Emprical Economics
Date Deposited: 28 Apr 2023 13:18
Last Modified: 14 Nov 2023 19:05
SWORD Depositor: Deep Green
URI: https://tuprints.ulb.tu-darmstadt.de/id/eprint/23719
PPN: 50944704X
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