Taxing Sudden Capital Income Surges

Wei Cui () and Jianjun Miao ()
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Wei Cui: University College London
Jianjun Miao: Zhejiang University

IMF Economic Review, 2025, vol. 73, issue 3, No 5, 779-818

Abstract: Abstract We study the impact of flat and progressive capital taxes in a continuous-time heterogeneous-agent incomplete markets model with sudden surges in capital income. We find that simple flat taxes on all capital income can increase wealth inequality relative to labor income inequality. But progressive taxes by taxing sudden surges at a higher rate can reduce wealth inequality and cause less distortion than flat taxation, provided that the government uses tax revenues to finance more public debt as liquidity for precautionary saving.

Keywords: C61; D83; E21; E22; H20 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1057/s41308-025-00280-3

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