On the Optimal Timing of Capital Taxes

John Hassler, Per Krusell, Kjetil Storesletten and Fabrizio Zilibotti

No 343, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: For many kinds of capital, depreciation rates change systematically with the age of the capital. Consider an example that captures essential aspects of human capital, both regarding its accumulation and its depreciation: a worker obtains knowledge in period 0, then uses this knowledge in production in periods 1 and 2, and thereafter retires. Here, depreciation accelerates: it occurs at a 100% rate after period 2, and at a lower (perhaps zero) rate before that. The present paper analyzes the implications of non-constant depreciation rates for the optimal timing of taxes on capital income. The main finding is that under natural assumptions, the path of tax rates over time must be oscillatory. Oscillatory tax rates are optimal when depreciation rates accelerate with the age of the capital (as in the above example), and provided that the government can commit to the path of future tax rates but cannot apply different tax rates in a given year to different vintages of capital.

Keywords: Asset depreciation; Human capital; Optimal taxation; Oscillations; State-contingent taxes; Tax dynamics. (search for similar items in EconPapers)
JEL-codes: D90 E61 E62 H21 H30 (search for similar items in EconPapers)
Date: 2007-12
New Economics Papers: this item is included in nep-acc, nep-dge, nep-pbe and nep-pub
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.zora.uzh.ch/id/eprint/52297/1/iewwp343.pdf (application/pdf)

Related works:
Journal Article: On the optimal timing of capital taxes (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zur:iewwpx:343

Access Statistics for this paper

More papers in IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich
Bibliographic data for series maintained by Severin Oswald ().