Should Capital Be Taxed?

Yunmin Chen, YiLi Chien, Yi Wen and C.C. Yang (ccyang@econ.sinica.edu.tw)
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C.C. Yang: http://www.econ.sinica.edu.tw/english/content/researcher/contents/2013093010101108435/?MSID=2013092820200812032

No 2020-033, Working Papers from Federal Reserve Bank of St. Louis

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 public debt is a better tool than capital taxation to restore aggregate productive efficiency.

Keywords: Capital Taxation; Government Bonds; Heterogeneous Agents; Incomplete Markets; Modified Golden Rule; Ramsey Problem; wealth distribution (search for similar items in EconPapers)
JEL-codes: C61 E22 E62 H21 H30 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2020-09-26, Revised 2020-12-10
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Economic Letters

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Related works:
Journal Article: Should capital be taxed? (2021)
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DOI: 10.20955/wp.2020.033

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