Optimal taxation and spending in general competitive growth models

We find that the optimal long-run tax on capital income is zero even if the capital stock does not converge to a steady state nor to a steady state growth rate. The optimal tax on human capital is also zero if human capital is not a final good, but the long-run wage tax is not generally zero. We argue that "consumption" tax proposals, such as the Flat Tax, are not consumption taxes, and are biased against human capital. (C) 1999 Elsevier Science S.A. All rights reserved.