Should capital be taxed?

Yunmin Chen, YiLi Chien, Yi Wen and C.C. Yang

Economics Letters, 2021, vol. 200, issue C

Abstract: We design an infinite-horizon heterogeneous-agents and incomplete-markets model to demonstrate analytically that in the absence of any redistributional effects of government policies, optimal capital tax is zero despite capital overaccumulation under precautionary savings and borrowing constraints. Our result indicates that in the long run public debt is a better tool than capital taxation to restore aggregate productive efficiency.

Keywords: Optimal capital taxation; Government bonds; Heterogeneous agents; Incomplete markets; Modified golden rule; Ramsey problem; Wealth distribution (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Working Paper: Should Capital Be Taxed? (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:200:y:2021:i:c:s0165176521000239

DOI: 10.1016/j.econlet.2021.109746

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