nep-pub New Economics Papers
on Public Finance
Issue of 2006‒03‒25
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Why Are Capital Income Taxes So High? By Floden, Martin
  2. Ageing and the sustainability of Dutch public finances. By Casper van Ewijk; Nick Draper; Harry ter Rele; Ed Westerhout

  1. By: Floden, Martin (Dept. of Economic Statistics, Stockholm School of Economics)
    Abstract: The Ramsey optimal taxation theory implies that the tax rate on capital income should be zero in the long run. This result holds even if the social planner only cares about workers that do not hold assets, or if the planner only cares about any other group in the economy. This paper demonstrates that although all households agree that capital income taxation should be eliminated in the long run, they do not agree on how to eliminate these taxes. Wealthy households would prefer a reform that is funded mostly by higher taxes on labor income while households with little wealth would prefer a reform that is funded mostly by high taxes on initial wealth. Pareto improving reforms typically exist, but the welfare gains of such reforms are modest.
    Keywords: optimal taxation; inequality; redistribution
    JEL: E60 H21
    Date: 2006–03–08
  2. By: Casper van Ewijk; Nick Draper; Harry ter Rele; Ed Westerhout
    Abstract: The ageing of the population jeopardises the sustainability of public finances in the Netherlands. The doubling of the ratio between the number of retirees and the number of workers destroys the balance between future public expenditure and tax revenues. Indeed, the increase in expenditure on public pensions and health and long-term care will outweigh the increase in tax revenues. Budgetary reforms are therefore necessary in order to avoid that future generations will have to raise taxes or economize on public expenditure. <P> Reforms in the field of social security of the last few years are a step in the right direction, but are insufficient. In particular, the decline of interest rates and the reduced wealth of pension funds have worsened the sustainability of public finances. The effects of reforms on the intergenerational balance are important for the question which further reforms are most attractive.
    Keywords: Ageing; public finances; intergenerational balance
    JEL: H62 J11
    Date: 2006–03

This nep-pub issue is ©2006 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.