Optimal capital taxation revisited

V.V. Chari, Juan Pablo Nicolini and Pedro Teles

Journal of Monetary Economics, 2020, vol. 116, issue C, 147-165

Abstract: We revisit the question of how capital should be taxed. We allow for a rich set of tax instruments that consists of taxes widely used in practice, including consumption, dividend, capital, and labor income taxes. We restrict policies to those that respect pre-existing promises regarding the current value of wealth. We show that capital should not be taxed (i.e. there should be no intertemporal distortions), if households have preferences that are standard in the macroeconomics literature. We show that Ramsey outcomes that must respect such promises are time consistent. We show that the presumption in the literature that capital should be taxed for some length of time arises because the tax system is restricted.

Keywords: Capital income tax; Time consistency; Production efficiency (search for similar items in EconPapers)
JEL-codes: E60 E61 E62 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Working Paper: Optimal Capital Taxation Revisited (2018)
Working Paper: Optimal Capital Taxation Revisited (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:116:y:2020:i:c:p:147-165

DOI: 10.1016/j.jmoneco.2019.09.015

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