Taxing capital income in a perpetual youth economy
We reconsider the issue of capital income taxation in an OLG perpetual youth framework. We show that the long run zero tax result does not generally hold. Besides the “life-cycle” motive pointed at by recent works, this work unveils two other forces pushing toward the taxation of capital income: the disconnection between generations and the relationship between the government and the individual intertemporal discount rates. We also show as a special case, that the non zero tax result applies also if age dependent taxes are not available, provided that the life-cycle behavior is ruled out, which cannot happen in the standard OLG models. Finally, it emerges that unfair life insurance contracts do not qualitatively affect the results. Journal of Economic Literature Classification Numbers: E62, H21.