Can Waste Improve Welfare?
نویسندگان
چکیده
In models with a capital spillover, the market outcome is not Pareto e cient since agents ignore the positive externalities caused by investment. One might conclude that taxes on investment or subsidies to consumption will reduce welfare. However in a model of endogenous growth, either a small tax on capital income, whose proceeds are wasted, increases growth and welfare or a small marginal subsidy to consumption increases growth and welfare. Also if the tax on capital income does not increase growth, a lump sum tax whose proceeds are wasted increases growth and, for a wide range of parameter values, increases welfare. JEL Classi cation: E62, H31, O41
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