Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83940
Authors: 
Selim, Sheikh
Year of Publication: 
2006
Series/Report no.: 
Cardiff Economics Working Papers E2006/20
Abstract: 
We provide a welfare based interpretation of the capital tax ambiguity result (due to Guo & Lansing, 1999). We show that the sign ambiguity of optimal capital tax rate in an imperfectly competitive economy is mainly due to the welfare cost of investment. The substitution and income effects of profit seeking investment reinforce each other which create a deadweight loss in welfare. Investors cannot perceive this effect and never invest at the right level. This loss is perceived only by the government which motivates capital taxation.
Subjects: 
Optimal taxation
Monopoly power
Ramsey policy
JEL: 
D42
E62
H21
H30
Document Type: 
Working Paper

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