Capital Taxation under Political Constraints

Florian Scheuer and Alexander Wolitzky

No 20043, NBER Working Papers from National Bureau of Economic Research, Inc

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, credible policies are those that will continue to attract enough political support in the future. If the only credible reform threat is to fully equalize consumption, we find that optimal marginal capital taxes are U-shaped, so that savings are subsidized for the middle class but are taxed for the poor and rich. If ex post the government may strategically propose a reform other than full equalization in order to secure additional political support, then optimal capital taxes are instead progressive throughout the income distribution.

JEL-codes: D31 D82 E62 H21 (search for similar items in EconPapers)
Date: 2014-04
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe, nep-pol, nep-pub and nep-res
Note: EFG PE POL
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published as Florian Scheuer & Alexander Wolitzky, 2016. "Capital Taxation under Political Constraints," American Economic Review, vol 106(8), pages 2304-2328.

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Related works:
Journal Article: Capital Taxation under Political Constraints (2016)
Working Paper: Capital Taxation under Political Constraints (2015)
Working Paper: Capital Taxation under Political Constraints (2014)
Working Paper: Capital Taxation under Political Constraints (2014)
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