Optimal Taxation of Human and Physical Capital in Endogenous Capital Models

Nouriel Roubini, Gian Maria Milesi-Ferrett

NBER Working Paper No. 4882
Issued in October 1994
NBER Program(s):The International Finance and Macroeconomics Program, The Public Economics Program

This paper studies the effects of human and physical capital income taxation on growth, and examines how these effects depend on the technologies for human capital accumulation and 'leisure'. It then derives the normative implications of the analysis for the optimal taxation of factor incomes. It is shown that in general both capital and labor (human capital) taxes are growth-reducing. In these cases, the optimal long-run tax on both capital and labor income is zero. The optimal taxation plan consists of taxing both factors in the short run, and financing spending in the long run through accumulated budget surpluses.

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Document Object Identifier (DOI): 10.3386/w4882

Published: Roubini, Nouriel and Gian Maria Milesi-Ferretti. "On the Taxation of Human and Physical Capital in Models of Endogenous Growth." Journal of Public Economics (1999).

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