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Optimal Taxation of Wealthy Individuals

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  • Ali Shourideh

    (University of Pennsylvania)

Abstract

This paper studies the determinants of optimal taxes for wealthy individuals faced with capital income risk. I develop a model of optimal taxation of capital income in which wealth and income inequality is a result of capital income shocks together with frictions in financial markets. I use the model to study optimal taxation of various types of capital income: capital income from controlled businesses, outside the business as well as bequests. In presence of risk-return trade-offs, i.e., when more productive investments are riskier, I show that it is typically optimal to have progressive saving taxes. Furthermore, in an intergenerational context, I show that bequest taxes should be negative. Finally, I study the implications of the model on long run efficient distribution of wealth. I show that the long-run distribution of wealth has a fat-tail distribution and compare the efï¬ cient tail of the wealth distribution to the one resulting from an ad-hoc incomplete market model.

Suggested Citation

  • Ali Shourideh, 2013. "Optimal Taxation of Wealthy Individuals," 2013 Meeting Papers 261, Society for Economic Dynamics.
    • Handle: RePEc:red:sed013:261
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    Cited by:

    1. Bettina Brueggemann, 2016. "Higher Taxes at the Top: The Role of Entrepreneurs," 2016 Meeting Papers 332, Society for Economic Dynamics.
    2. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2020. "Heterogeneity and Persistence in Returns to Wealth," Econometrica, Econometric Society, vol. 88(1), pages 115-170, January.
    3. Sergio Ocampo & Gueorgui Kambourov & Daphne Chen & Burhanettin Kuruscu & Fatih Guvenen, 2017. "Use It or Lose It: Efficiency Gains from Wealth Taxation," 2017 Meeting Papers 913, Society for Economic Dynamics.
    4. Findeisen, Sebastian & Sachs, Dominik, 2014. "Efficient Labor and Capital Income Taxation over the Life Cycle," Working Papers 14-17, University of Mannheim, Department of Economics.
    5. Mikhail Golosov & Aleh Tsyvinski & Nicolas Werquin, 2014. "A Variational Approach to the Analysis of Tax Systems," NBER Working Papers 20780, National Bureau of Economic Research, Inc.
    6. Marek Kapička, 2015. "Optimal Mirrleesean Taxation in a Ben-Porath Economy," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(2), pages 219-248, April.
    7. Stefanie Stantcheva, 2015. "Learning and (or) Doing: Human Capital Investments and Optimal Taxation," NBER Working Papers 21381, National Bureau of Economic Research, Inc.
    8. Sachs, Dominik & Findeisen, Sebastian, 2015. "Insurance and Redistribution with Simple Tax Instruments," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113099, Verein für Socialpolitik / German Economic Association.

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