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An equilibrium-conserving taxation scheme for income from capital

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  • Jacques Tempere

    (Theory of Quantum and Complex Systems, Universiteit Antwerpen)

Abstract

Under conditions of market equilibrium, the distribution of capital income follows a Pareto power law, with an exponent that characterizes the given equilibrium. Here, a simple taxation scheme is proposed such that the post-tax capital income distribution remains an equilibrium distribution, albeit with a different exponent. This taxation scheme is shown to be progressive, and its parameters can be simply derived from (i) the total amount of tax that will be levied, (ii) the threshold selected above which capital income will be taxed and (iii) the total amount of capital income. The latter can be obtained either by using Piketty’s estimates of the capital/labor income ratio or by fitting the initial Pareto exponent. Both ways moreover provide a check on the amount of declared income from capital.

Suggested Citation

  • Jacques Tempere, 2018. "An equilibrium-conserving taxation scheme for income from capital," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 91(2), pages 1-6, February.
    • Handle: RePEc:spr:eurphb:v:91:y:2018:i:2:d:10.1140_epjb_e2018-80497-x
    DOI: 10.1140/epjb/e2018-80497-x
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    References listed on IDEAS

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    1. Barr, Nicholas, 2012. "Economics of the Welfare State," OUP Catalogue, Oxford University Press, edition 5, number 9780199297818.
    2. Levy, Haim & Levy, Moshe & Solomon, Sorin, 2000. "Microscopic Simulation of Financial Markets," Elsevier Monographs, Elsevier, edition 1, number 9780124458901.
    3. Chakrabarti,Bikas K. & Chakraborti,Anirban & Chakravarty,Satya R. & Chatterjee,Arnab, 2013. "Econophysics of Income and Wealth Distributions," Cambridge Books, Cambridge University Press, number 9781107013445.
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