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Capital Income Taxation, Economic Growth and Heterogeneity in the Motivation to Give


Address for correspondence: Lars Kunze, Economics Department (Public Economics), TU Dortmund University 44227 Dortmund, Germany. Tel.: +49 231 755 3275; fax: +49 231 755 5404. e-mail:


This study provides a comprehensive analysis of the relationship between capital income taxation and economic growth within an overlapping generations model when individuals may bequeath wealth. The altruistic concern is modeled as a synthesis of joy-of-giving and family altruism so that individuals may derive utility from the amount of bequest itself and by providing children with a disposable income later on in life. Using this framework, it is shown that, in contrast to the existing literature, increasing the capital income tax rate may well enhance growth under operative bequests.