Dynamic Tax Incidence in a Two-Class Economy

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The main purpose of this paper is to re-examine the results of long-run tax incidence in a heterogeneous agents' growth model. To this end, we adopt an intertemporal optimizing approach to provide rigorous microfoundations of the savings behavior of individuals in a Kaldorian two-class growing model. Earlier literature in this field has mainly used a neoclassical growth model with fixed savings ratios, and shows that the results of tax incidence crucially depend on various structural parameters of the model, such as the fixed savings ratios, the growth rate of population, and the production function, and that by substituting labor income taxes for capital income taxes, workers also bear a larger part of the burden. By contrast, in our model the savings ratios of the two classes are endogenously determined by intertemporal optimizing behavior of agents. Furthermore, contradictive results would emerge ; under some mild assumptions on the production functions workers are better off under an imposition of capital income taxation.
小樽商科大学の論文