This paper tackles the fundamental issue in public finance of wether taxing or subsidizing factor rents. In a one sector endogenous growth model with private and public capital, similar to that in Barro (1990),we find that raising taxes on factors’ income as part of an optimal fiscal policy is...

In an infinitely-lived framework, taxing capital income may be growth and welfare enhancing when it allows for correcting distorting externalities in the competitive equilibrium allocation. This is the case when public capital is subject to congestion by private capital or total income [Fisher...

In a Barro-type economy with exogenous consumption aspirations, raising income taxes favors growth even in the presence of lump-sum taxes. Such a policy is compatible with the behavior of private consumption, income taxes and growth rates observed in actual economies.