A Note on the Optimality of the Cash Flow Tax
This paper analyzes the optimal tax policy within an endoge-nous growth model with productive government spending. We consider a one-factor (human capital) one-good economy, with the latter serving both as a final and an intermediate good. The government levies taxes in order to finance the provision of the intermediate good. Within this framework we show a highly intuitive result: the optimal tax structure is a 100 percent tax on cash flows and no tax on labor income. As a consequence, the consumption tax causes a deadweight loss, which increases with the intensity of use of the intermediate good.
Year of publication: |
2000
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Authors: | Serra, Pablo ; Hojman, Daniel |
Institutions: | Centro de Economía Aplicada, Universidad de Chile |
Saved in:
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