The Capital Levy in Theory and Practice
A capital levy is a one-time tax on all wealth holders with the goal of retiring public debt. This paper reconsiders the historical debate over the capital levy in a contingent capital taxation framework. This shows how in theory the imposition of a levy can be welfare improving when adopted to redress debt problems created by special circumstances, even if its nonrecurrence cannot be guaranteed. If the contingencies in response to which the levy is imposed are fully anticipated, independently verifiable and not under government control, then saving and investment should not fall following the imposition of the levy, nor should the government find it more difficult to raise revenues subsequently. In practice, serious problems stand in the way of implementation. A capital levy has profound distribution consequences. Property owners are sure to resist its adoption. In a democratic society, their objections are guaranteed to cause delay. This provides an opportunity for capital flight, reducing the prospective yield, and allows the special circumstances providing the justification for the levy to recede in the past. The only successful levies occur in cases like post-World War II Japan, where important elements of the democratic process are suppressed and where the fact that the levy was imposed by an outside power minimized the negative impact on the reputation of subsequent sovereign governments.
(This abstract was borrowed from another version of this item.)
|Date of creation:||01 Aug 1989|
|Contact details of provider:|| Postal: F502 Haas, Berkeley CA 94720-1922|
Phone: (510) 642-1922
Fax: (510) 642-5018
Web page: http://www.escholarship.org/repec/iber_econ/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Henry Shavell, 1948. "Postwar Taxation in Japan," Journal of Political Economy, University of Chicago Press, vol. 56, pages 124-124.
- Grossman, Herschel I & Van Huyck, John B, 1988.
"Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation,"
American Economic Review,
American Economic Association, vol. 78(5), pages 1088-1097, December.
- Herschel I. Grossman & John B. Van Huyck, 1985. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," NBER Working Papers 1673, National Bureau of Economic Research, Inc.
- Chari, V V & Kehoe, Patrick J, 1990. "Sustainable Plans," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 783-802, August.
- V. V. Chari & Patrick J. Kehoe, 1989. "Sustainable plans," Staff Report 122, Federal Reserve Bank of Minneapolis.
- V. V. Chari & Patrick J Kehoe, 1998. "Sustainable Plans," Levine's Working Paper Archive 600, David K. Levine.
- V. V. Chari, 1988. "Time consistency and optimal policy design," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 17-31.
- Alberto Alesina, 1988. "Macroeconomics and Politics," NBER Chapters,in: NBER Macroeconomics Annual 1988, Volume 3, pages 13-62 National Bureau of Economic Research, Inc.
- Thomas J. Sargent, 1982. "The Ends of Four Big Inflations," NBER Chapters,in: Inflation: Causes and Effects, pages 41-98 National Bureau of Economic Research, Inc.
- Thomas J. Sargent, 1981. "The ends of four big inflations," Working Papers 158, Federal Reserve Bank of Minneapolis.
- Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-396, March.
- Fischer, Stanley, 1980. "Dynamic inconsistency, cooperation and the benevolent dissembling government," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 93-107, May.
- Prescott, Edward C., 1977. "Should control theory be used for economic stabilization?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 7(1), pages 13-38, January.
- Herschel I. Grossman, 1988. "The Political Economy of War Debts and Inflation," NBER Working Papers 2743, National Bureau of Economic Research, Inc. Full references (including those not matched with items on IDEAS)