Optimal capital taxation revisited

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

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

15 Citations (Scopus)

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
Pages (from-to)147-165
Number of pages19
JournalJournal of Monetary Economics
Volume116
DOIs
Publication statusPublished - Dec 2020

Keywords

  • Capital income tax
  • Production efficiency
  • Time consistency

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