Abstract
This chapter analyzes the effect of different fiscal instruments, taxes on wages and capital income, along with public borrowing, on the welfare of individuals. The setting is that of a simple non-overlapping generations growth model wherein two types of individual coexist: altruists and non-altruists. If we consider the standard overlapping generations model after Diamond (1965), wherein individuals are pure life-cyclers and have an endogenous labour supply, we know that the market outcome can be inefficient but at the same time that public borrowing can restore efficiency. We also know from Atkinson and Sandmo (1980) and Stiglitz (1985) that taxing not only wage income but also capital income is generally desirable. On the other hand, if we turn to the infinite-lived individuals model (alternatively an overlapping generations model wherein individuals are altruistic and are linked to successive generations through a chain of operative bequests,2 we expect an efficient outcome along with debt neutrality. Regarding taxation, the standard result is that, under rather general conditions, the optimal tax rate on capital income is equal to zero in the long run (Chamley, 1986).
CORE, DELTA and CEPR. We wish to thank the SSTC for financial support.
This is a preview of subscription content, log in via an institution.
Buying options
Tax calculation will be finalised at checkout
Purchases are for personal use only
Learn about institutional subscriptionsPreview
Unable to display preview. Download preview PDF.
References
Atkinson, A. B. and Sandmo, A. (1980) ‘Welfare Implications of the Taxation of Savings’, Economic Journal, vol. 90, pp. 529–49.
Barro, R. J. (1974) ‘Are Government Bonds Net Wealth?’, Journal of Political Economy, vol. 82, pp. 1095–117.
Caballe, J. (1995) ‘Growth Effects of Fiscal Policy under Altruism and Low Elasticity of Intertemporal Substitution’, IAE WP. 909.95: Autonomous University of Barcelona.
Chamley, C. P. (1986) ‘Optimal Taxation of Capital in General Equilibrium with Infinite Lives’, Econometrica, vol. 54, pp. 607–22.
Diamond, P. A. (1965) ‘National Debt in a Neoclassical Growth Model’, American Economic Review, vol. 55, pp. 1126–50.
Michel, P. and Pestieau, P. (1998) ‘Fiscal Policy in a Growth Model with both Altruistic and Nonaltruistic Agents’, Southern Economic Journal, vol. 64, pp. 682–98.
Michel, P. and Pestieau, P. (1999) ‘Fiscal Policy in a Growth Model where Individuals Differ as to Altruism and Labour Supply’, Journal of Public Economic Theory, 1, pp. 187–203.
Stiglitz, J. E. (1985) ‘Inequality and Capital Taxation’, IMSS Technical Report No. 457, Palo Alto, Calif.: Stanford University Press.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Copyright information
© 2000 International Economic Association
About this chapter
Cite this chapter
Michel, P., Pestieau, P. (2000). Tax-transfer Policy with Altruists and Non-altruists. In: Gérard-Varet, LA., Kolm, SC., Ythier, J.M. (eds) The Economics of Reciprocity, Giving and Altruism. International Economic Association Series. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-62745-5_15
Download citation
DOI: https://doi.org/10.1007/978-1-349-62745-5_15
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-62747-9
Online ISBN: 978-1-349-62745-5
eBook Packages: Palgrave History CollectionHistory (R0)