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Is capital back? The role of land ownership and savings behavior

Author

Listed:
  • Max Franks

    (Potsdam Institute for Climate Impact Research (PIK), Member of the Leibniz Association)

  • David Klenert

    (Mercator Research Institute on Global Commons and Climate Change)

  • Anselm Schultes

    (Potsdam Institute for Climate Impact Research (PIK), Member of the Leibniz Association)

  • Kai Lessmann

    (Potsdam Institute for Climate Impact Research (PIK), Member of the Leibniz Association
    Mercator Research Institute on Global Commons and Climate Change)

  • Ottmar Edenhofer

    (Potsdam Institute for Climate Impact Research (PIK), Member of the Leibniz Association
    Mercator Research Institute on Global Commons and Climate Change
    Berlin Institute of Technology)

Abstract

Wealth inequality is a major political concern in most OECD countries. Under this premise, we analyze different policy instruments in terms of their impact on wealth inequality and output. In a general equilibrium model, we disaggregate wealth in its capital and land components, and savings in their life-cycle and bequest components. Households are heterogeneous in their taste for leaving bequests. We show that governments have considerable freedom in reducing wealth inequality without sacrificing output: Land rent taxes enhance output due to a portfolio effect and reduce wealth inequality slightly. Bequest taxes have the highest potential to reduce inequality, and their effect on output is moderate. By contrast, we confirm the standard result that capital taxes reduce output strongly and show that they only have moderate redistributive effects. Furthermore, we find that using the tax proceeds for transfers to the young generations enhances output the most and further reduces wealth inequality.

Suggested Citation

  • Max Franks & David Klenert & Anselm Schultes & Kai Lessmann & Ottmar Edenhofer, 2018. "Is capital back? The role of land ownership and savings behavior," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(5), pages 1252-1276, October.
    • Handle: RePEc:kap:itaxpf:v:25:y:2018:i:5:d:10.1007_s10797-018-9486-3
    DOI: 10.1007/s10797-018-9486-3
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    Cited by:

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    2. Mattauch, Linus & Klenert, David & Stiglitz, Joseph E. & Edenhofer, Ottmar, 2022. "Overcoming wealth inequality by capital taxes that finance public investment," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 383-395.
    3. Max Franks & Ottmar Edenhofer, 2020. "Optimal Redistributive Wealth Taxation When Wealth Is More Than Just Capital," CESifo Working Paper Series 8093, CESifo.

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    More about this item

    Keywords

    Fiscal policy; Wealth distribution; Inequality; Capital tax; Bequests; Land rent tax;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land

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