Rethinking Fiscal Policy in the Global Economy

The project aims at addressing the following five related policy questions: In a world with increasing inequality, should capital income be taxed? In a world where labor is threatened by automation, how should machines be treated in fiscal terms? In a world in which globalization also appears to be a threat to labor, should trade be taxed away? In a world with increasing uncertainty, how does uncertainty affect the optimal taxation of capital and labor? A good part of the wealth of households is in residential property. Should housing be treated for fiscal purposes just like capital or should housing services be taxed, just like any other consumption good?
The first set of questions is addressed in Optimal Capital Taxation Revisited, by Chari, Juan Nicolini and Teles. Preliminary results in this paper suggest that capital income taxes should never be used. The result is in sharp contrast with recent work on the optimal tax on capital but it is also in contrast with the more established results of Chamley and Judd, that argue for a zero taxation in the steady state but for full taxation of capital income along the transition.
The questions on the implications of the speed of automation for optimal taxation are addressed by Guerreiro, Rebelo, Teles in Should We Tax Robots?
The questions on the threats from globalization are addressed in Ramsey Taxation in the Global Economy, by Chari, Nicolini and Teles. We will analyze optimal (cooperative) taxation policy in a world economy. What are efficient wedges in a world economy? How can the optimal cooperative solution be implemented with a particular tax system? Does the taxation of imports and exemption of exports mean that the country is closing its borders to trade?
The questions on how to tax housing are dealt with in Should We Stop Taxing Homes? by Correia, Reis and Teles. On one hand, investment in housing is like investment in capital, and as such the results on the optimal taxation of capital should apply, and, absent confiscatory motives, housing investment should not be taxed. On the other hand, households live in homes and consume housing services. As such, the standard results on the taxation of final goods should apply, and housing should be taxed. How should it be taxed? Should property taxes be used? Should rents (and imputed rents) be taxed? At what rates? A good part of household wealth is in housing, so that the taxation of housing is also a form of distributing wealth across households. How do distribution concerns affect the taxation of the investment in housing? The role of uncertainty for optimal taxation of capital and labor will be dealt with in A Unified Framework for Optimal Taxation with Undiversifiable Risk by Panousi and Reis.