TY - JOUR AU - Auerbach,Alan J. TI - The Deadweight Loss from `Non-Neutral' Capital Income Taxation JF - National Bureau of Economic Research Working Paper Series VL - No. 2510 PY - 1988 Y2 - February 1988 DO - 10.3386/w2510 UR - http://www.nber.org/papers/w2510 L1 - http://www.nber.org/papers/w2510.pdf N1 - Author contact info: Alan J. Auerbach Department of Economics 530 Evans Hall, #3880 University of California, Berkeley Berkeley, CA 94720-3880 Tel: 510/643-0711 Fax: 510/643-0413 E-Mail: auerbach@econ.berkeley.edu AB - This paper develops an overlapping generations general equilibrium growth model with an explicit characterization of the role of capital goods in the production process. The model is rich enough in structure to evaluate and measure simultaneously the different distortions associated with capital income taxation (across sectors, across assets and across time) yet simple enough to yield intuitive analytical results as well. The main result is that uniform capital income taxation is almost certainly suboptimal, theoretically, but that empirically, optimal deviations from uniform taxation are inconsequential. We also find that though the gains from a move to uniform taxation are not large in absolute magnitude these gains would be offset only by an overall rise in capital income tax rates of several percentage points. A separate contribution of the paper is the development of a technique for distinguishing intergenerational transfers from efficiency gains in analyzing the effects of policy changes on long-run welfare. ER -