Capital Taxation in an Age of Inequality

Capital taxation, inequality and polarisation under lack of commitment

Research from models allowing for heterogeneity in asset endowments and endogenously chosen …scal policy suggests a positive link between income inequality and both capital taxes and polarisation. However, while the second prediction receives empirical support, capital tax rates are negatively related with inequality in the data for OECD democracies. Using the basic neoclassical model with capi...

Taxation and Capital Spending

Entrepreneurship, Inequality, and Taxation∗

This paper investigates the importance of entrepreneurship when quantifying the aggregate and distributional effects of switching from a progressive to a proportional income tax system. I find that the distributional consequences of the tax reform in a model economy with entrepreneurs contrast markedly from those in a model economy with no entrepreneurs. The elimination of progressive taxation ...

Optimal Capital Income Taxation∗

In an economy with identical infinitely-lived households that obtain utility from leisure as well as consumption, Chamley (1986) and Judd (1985) have shown that the optimal tax system to pay for an exogenous stream of government purchases involves a zero tax rate on capital in the long run, with tax revenue collected by a distortionary tax on labor income. Extending the results of Hall and Jorg...

An Analysis the Effect of Capital Taxation on Allocation of Resources: A Dynamic Equilibrium Model Approach

Abstract T he return of capital is fundamental to the intertemporal allocation of resources by changing the consumption behavior and capital accumulation over time. Taxation on return of capital increases the marginal product of capital, meaning that capital stock is lower than when capital is not taxed, which results decreased growth and welfare in steady state. This pape...