Optimal capital taxation revisited

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

Research output: Contribution to journalArticlepeer-review

13 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)147-165
Number of pages19
JournalJournal of Monetary Economics
Volume116
DOIs
StatePublished - Dec 2020

Bibliographical note

Publisher Copyright:
© 2019 Elsevier B.V.

Keywords

  • Capital income tax
  • Production efficiency
  • Time consistency

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