Optimal Progressive Capital Income Taxes in the Infinite Horizon Model

Emmanuel Saez

No 9046, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes optimal progressive capital income taxation in an infinite horizon model where individuals differ only through their initial wealth. We show that, in that context, progressive taxation is a much more powerful and efficient tool to redistribute wealth than linear taxation on which previous literature has focused. We consider progressive capital income tax schedules taking a simple two-bracket form with an exemption bracket at the bottom and a single marginal tax rate above a time varying exemption threshold. Individuals are taxed until their wealth is reduced down to the exemption threshold. When the intertemportal elasticity of substitution is not too large and the top tail of the initial wealth distribution is infinite and thick enough, the optimal exemption threshold converges to a finite limit. As a result, the optimal tax system drives all the large fortunes down a finite level and produces a truncated long-run wealth distribution. A number of numerical simulations illustrate the theoretical result.

JEL-codes: H21 H62 (search for similar items in EconPapers)
Date: 2002-07
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Published as Emmanuel Saez, 2013. "Optimal progressive capital income taxes in the infinite horizon model," Journal of Public Economics, vol 97(), pages 61-74.

Downloads: (external link)
http://www.nber.org/papers/w9046.pdf (application/pdf)

Related works:
Journal Article: Optimal progressive capital income taxes in the infinite horizon model (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:9046

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w9046

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().