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Capital Taxation under Political Constraints

Florian Scheuer () and Alexander Wolitzky

No 5098, CESifo Working Paper Series from CESifo

Abstract: This paper studies optimal dynamic tax policy under the threat of political reform. A policy will be reformed ex post if a large enough political coalition supports reform; thus, sustainable policies are those that will continue to attract enough political support in the future. We find that optimal marginal capital taxes are either progressive or U-shaped, so that savings are subsidized for the poor and/or the middle class but are taxed for the rich. U-shaped capital taxes always emerge when the salient reform threat consists of radically redistributing capital and individuals’ political behavior is purely determined by economic motives.

Keywords: wealth inequality; capital taxation; coalition formation (search for similar items in EconPapers)
Date: 2014
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Related works:
Journal Article: Capital Taxation under Political Constraints (2016) Downloads
Working Paper: Capital Taxation under Political Constraints (2015) Downloads
Working Paper: Capital Taxation under Political Constraints (2014) Downloads
Working Paper: Capital Taxation under Political Constraints (2014) Downloads
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