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Optimal Capital Income Taxation and Redistribution

  • Ulrike Vogelgesang

This paper studies the effects of agent heterogeneity on optimal capital income taxation. We discuss conditions for the optimality of zero capital income taxes in a multiperiod model with heterogeneous agents and explicitly derive the welfare effects of taxation depending on the distribution of the agents' characteristics. In particular, we show that the sign of the optimal capital income tax rate does not depend on the extent of inequality in goods endowments and productivities each by itself, but on a measure of inequality in their joint distribution.

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Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 57 (2000)
Issue (Month): 4 (August)
Pages: 412-434

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200108)57:4_412:ocitar_2.0.tx_2-l
Contact details of provider: Web page: http://www.mohr.de/fa

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  1. Deaton, Angus, 1979. "Optimally uniform commodity taxes," Economics Letters, Elsevier, vol. 2(4), pages 357-361.
  2. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 2001. "Direct versus Indirect Taxation: The Design of the Tax Structure Revisted," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 781-99, August.
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  7. David R. Stockman, 2001. "Balanced-Budget Rules: Welfare Loss and Optimal Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 438-459, July.
  8. Paul Klein & JosÈ-VÌctor RÌos-Rull, 2003. "Time-consistent optimal fiscal policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1217-1245, November.
  9. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
  10. V.V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1993. "Optimal fiscal policy in a business cycle model," Staff Report 160, Federal Reserve Bank of Minneapolis.
  11. Jonathan Heathcote & David Domeij, 2000. "Capital Versus Labor Income Taxation With Heterogeneous Agents," Computing in Economics and Finance 2000 346, Society for Computational Economics.
  12. Anthony B. Atkinson, 1976. "Optimal Taxation and the Direct versus Indirect Tax Controversy," Working Papers 247, Queen's University, Department of Economics.
  13. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
  14. Naito, Hisahiro, 1999. "Re-examination of uniform commodity taxes under a non-linear income tax system and its implication for production efficiency," Journal of Public Economics, Elsevier, vol. 71(2), pages 165-188, February.
  15. Larry E. Jones & Rodolfo E. Manuelli & Peter E. Rossi, 1993. "On the Optimal Taxation of Capital Income," NBER Working Papers 4525, National Bureau of Economic Research, Inc.
  16. Plug, Erik J. S. & van Praag, Bernard M. S. & Hartog, Joop, 1999. "If we knew ability, how would we tax individuals?," Journal of Public Economics, Elsevier, vol. 72(2), pages 183-211, May.
  17. Sheshinski, Eytan, 1972. "The Optimal Linear Income-Tax," Review of Economic Studies, Wiley Blackwell, vol. 39(3), pages 297-302, July.
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