Angelopoulos, Konstantinos Malley, James R. Philippopoulos, Apostolis
Year of Publication:
CESifo working paper: Fiscal Policy, Macroeconomics and Growth 3444
This paper studies the aggregate and distributional implications of Markov-perfect taxspending policy in a neoclassical growth model with capitalists and workers. Focusing on the long run, our main findings are: (i) it is optimal for a benevolent government, which cares equally about its citizens, to tax capital heavily and to subsidise labour; (ii) a Pareto improving means to reduce inefficiently high capital taxation under discretion is for the government to place greater weight on the welfare of capitalists; (iii) capitalists and workers preferences, regarding the optimal amount of 'capitalist bias', are not aligned implying a conflict of interests.