Optimal Income Taxation with Asset Accumulation

Abraham, Arpad; Koehne, Sebastian; Pavoni, Nicola
Authors registered in the RePEc Author Service: Sebastian Koehne, Nicola Pavoni and Arpad J. Abraham ()

No ECO2014/14, Economics Working Papers from European University Institute

Abstract: Several frictions restrict the government's ability to tax assets. First, it is very costly to monitor trades on international asset markets. Second, agents can resort to nonobservable low-return assets such as cash, gold or foreign currencies if taxes on observable assets become too high. This paper shows that limitations in asset taxation have important consequences for the taxation of labor income. Using a dynamic moral hazard model of social insurance, we find that optimal labor income taxes become less progressive when governments face limitations in asset taxation. We evaluate the quantitative effect of imperfect asset taxation for two applications of our model.

Keywords: Optimal Income Taxation; Capital Taxation; Progressivity (search for similar items in EconPapers)
JEL-codes: D82 D86 E21 H21 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Optimal Income Taxation with Asset Accumulation (2014)
Working Paper: Optimal Income Taxation with Asset Accumulation (2014)
Working Paper: Optimal income taxation with asset accumulation (2012)
Working Paper: Optimal Income Taxation with Asset Accumulation (2011)
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