Capital Taxation under Political Constraints

Florian Scheuer and Alexander Wolitzky

No 10418, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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: Coalition formation; Inequality; Tax reforms; Wealth taxation (search for similar items in EconPapers)
JEL-codes: D3 D6 D9 E6 H2 P5 (search for similar items in EconPapers)
Date: 2015-02
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Capital Taxation under Political Constraints (2016)
Working Paper: Capital Taxation under Political Constraints (2014)
Working Paper: Capital Taxation under Political Constraints (2014)
Working Paper: Capital Taxation under Political Constraints (2014)
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