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The Later You Pay, the Higher the k
Author(s) -
Seidman Laurence S.,
Lewis Kenneth A.
Publication year - 2003
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2003.tb00513.x
Subject(s) - economics , consumption (sociology) , wage , capital (architecture) , consumption tax , lump sum , labour economics , incentive , income tax , path (computing) , capital income , monetary economics , state income tax , payment , tax reform , international taxation , microeconomics , public economics , finance , social science , archaeology , sociology , computer science , programming language , history
This paper shows the importance of the age path (life‐cycle timing) of any tax for the accumulation of capital in the economy. Income, consumption, and wage taxes differ in their age paths as well as their incentive effects. This paper studies how the differing age path of each tax affects the capital accumulation of the economy in an empirically calibrated life‐cycle model. We investigate lump‐sum “age” taxes and find in every case that the later the person pays tax, the higher the k of the economy. To analyze the life‐cycle timing effect of conventional transactions‐based taxes (income, consumption, and wage), we replace each tax with a lump‐sum age tax that has the identical age path of tax payments over the life cycle. We find that the timing effect is quantitatively important and often causes the impact of a tax on capital accumulation to be very different from what would be predicted from the incentive effect.