On optimal redistributive capital taxation

Reinhorn, L.J.

Abstract

This paper addresses conicting results regarding the optimal taxation of capital income. Judd (1985) proves that in steady state there should be no taxation of capital income. Lansing (1999) studies a logarithmic example of one of Judds models and nds that the optimal steady state tax on capital income is not always zero it is positive in some specications, negative in some others. There appears to be a contradiction. However, I show that Lansing derives his result by relaxing the hypotheses of Judds theorem with less restrictive hypotheses, a wider range of outcomes is possible. This raises the question of whether yet more outcomes are possible with yet weaker hypotheses. I nd that the answer is no: the only possible interior steady states for the model are essentially Judds zero capital tax and Lansings unitary elasticity of marginal utility.

Citation

Reinhorn, L. (2016). On optimal redistributive capital taxation

• Working Paper Type: Working Paper
• Online Publication Date: Nov 18, 2016
• Publication Date: Nov 18, 2016
• Deposit Date: Jun 4, 2019
• Publicly Available Date: Jun 26, 2019
• Series Title: Centre for economic growth and policy working papers
• Public URL: https://durham-repository.worktribe.com/output/1168658
• Publisher URL: https://www.dur.ac.uk/resources/business/working-papers/redistributive.pdf