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Optimal Positive Capital Taxes at Interior Steady States

Author

Listed:
  • Jess Benhabib
  • Bálint Szőke

Abstract

We generalize recent results of Bassetto and Benhabib (2006 ) and Straub and Werning (2019 ) in a neoclassical model with endogenous labor-leisure choice where all agents are allowed to save and accumulate capital. We provide a sufficient condition under which optimal redistributive capital taxes remain at their allowed upper bound forever, even if the resulting equilibrium trajectory converges to a unique steady state with positive and finite consumption, capital, and labor. We then provide an interpretation of our sufficient condition. Using recent evidence on wealth distribution in the United States, we argue that our sufficient condition is empirically plausible.

Suggested Citation

  • Jess Benhabib & Bálint Szőke, 2021. "Optimal Positive Capital Taxes at Interior Steady States," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(1), pages 114-150, January.
    • Handle: RePEc:aea:aejmac:v:13:y:2021:i:1:p:114-50
    DOI: 10.1257/mac.20180191
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    Citations

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    Cited by:

    1. Odran Bonnet & Guillaume Flamerie de La Chapelle & Alain Trannoy & Etienne Wasmer, 2019. "Secular Trends in Wealth and Heterogeneous Capital: Land is Back... and Should Be Taxed," Sciences Po Economics Discussion Papers hal-03570837, HAL.
    2. repec:spo:wpmain:info:hdl:2441/1eob9f9aas9q18hfjsiqhggvi2 is not listed on IDEAS
    3. Odran Bonnet & Guillaume Flamerie de La Chapelle & Alain Trannoy & Etienne Wasmer, 2019. "Secular Trends in Wealth and Heterogeneous Capital: Land is Back... and Should Be Taxed," Working Papers hal-03570837, HAL.
    4. Bonnet, Odran & Chapelle, Guillaume & Trannoy, Alain & Wasmer, Etienne, 2021. "Land is back, it should be taxed, it can be taxed," European Economic Review, Elsevier, vol. 134(C).
    5. repec:spo:wpmain:info:hdl:2441/56k383m9o9kpb1g6f8rvv74ok is not listed on IDEAS
    6. Odran Bonnet & Guillaume Flamerie de la Chapelle & Alain Trannoy & Etienne Wasmer, 2019. "Secular trends in Wealth and Heterogeneous Capital: Land is back...and should be taxed," SciencePo Working papers hal-03541411, HAL.
    7. Corina Boar & Matthew Knowles, 2020. "Entrepreneurship, Agency Frictions and Redistributive Capital Taxation," Discussion Paper Series, School of Economics and Finance 202004, School of Economics and Finance, University of St Andrews.
    8. Boar, Corina & Knowles, Matthew, 2024. "Optimal taxation of risky entrepreneurial capital," Journal of Public Economics, Elsevier, vol. 234(C).
    9. Katharina Greulich & Sarolta Laczó & Albert Marcet, 2023. "Pareto-Improving Optimal Capital and Labor Taxes," Journal of Political Economy, University of Chicago Press, vol. 131(7), pages 1904-1946.
    10. Li, Meng, 2023. "Loss aversion and inefficient general equilibrium over the business cycle," Economic Modelling, Elsevier, vol. 118(C).
    11. Li, Fanghui & Wang, Gaowang, 2019. "The Demand for Status and Optimal Capital Taxation," MPRA Paper 96076, University Library of Munich, Germany.
    12. repec:spo:wpecon:info:hdl:2441/1eob9f9aas9q18hfjsiqhggvi2 is not listed on IDEAS

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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