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Capital Levies and Transition to a Consumption Tax

  • Louis Kaplow

The merits of capital levies depend on the likelihood of repetition, the extent of anticipation, and its effects on distribution. The relevance of these features, which in varying degrees is underdeveloped or underappreciated in pertinent literatures, is elaborated and then considered with regard to the problem of transition to a consumption tax. Other transition issues are distinguished, and specific attention is devoted to rate changes under a consumption tax and whether owners of preexisting capital are effectively compensated through higher net-of-tax returns due to repeal of the income tax. The analysis is also related to literature that examines dynamic models of taxation, particularly work simulating consumption tax transitions and assessing the optimality of capital taxation in the long run.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12259.

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Date of creation: May 2006
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Publication status: published as Auerbach, Alan J. and Daniel N. Shaviro (eds.) Institutional Foundations of Public Finance: Economic and Legal Perspectives. Cambridge and London: Harvard University Press, 2008.
Handle: RePEc:nbr:nberwo:12259
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  1. Howitt, Peter & Sinn, Hans-Werner, 1989. "Gradual Reforms of Capital Income Taxation," Munich Reprints in Economics 19370, University of Munich, Department of Economics.
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  7. Louis Kaplow, 2004. "On the Undesirability of Commodity Taxation Even When Income Taxation is Not Optimal," NBER Working Papers 10407, National Bureau of Economic Research, Inc.
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  14. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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  19. Louis Kaplow, 2003. "Transition Policy: A Conceptual Framework," NBER Working Papers 9596, National Bureau of Economic Research, Inc.
  20. Stiglitz, Joseph E., 1987. "Pareto efficient and optimal taxation and the new new welfare economics," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 15, pages 991-1042 Elsevier.
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  27. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
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