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Optimal Redistributive Wealth Taxation When Wealth Is More Than Just Capital

Max Franks and Ottmar Edenhofer

No 8093, CESifo Working Paper Series from CESifo

Abstract: We show how normative standpoints determine optimal taxation of wealth. Since wealth is not equal to capital, we find very different welfare implications of land rent-, bequest- and capital taxation. It is mainly land rents that should be taxed. We develop an overlapping generations model with heterogeneous agents and calibrate it to OECD data. We compare three normative views. First, the Kaldor-Hicks criterion favors the laissez-faire equilibrium. Second, with prioritarian welfare functions based on money-metric utility, high land rent taxes are optimal due to a portfolio effect. Third, if society disapproves of bequeathing, bequest taxation becomes slightly more desirable.

Keywords: optimal taxation; social welfare; wealth inequality; land rent tax; Georgism (search for similar items in EconPapers)
JEL-codes: D31 D63 E62 H21 H23 Q24 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-pub
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