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Capital Taxation under Political Constraints

Alexander Wolitzky and Florian Scheuer ()

No 191, 2014 Meeting Papers from Society for Economic Dynamics

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 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.

Date: 2014
New Economics Papers: this item is included in nep-cdm, nep-dge, nep-pbe, nep-pol and nep-pub
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https://economicdynamics.org/meetpapers/2014/paper_191.pdf (application/pdf)

Related works:
Journal Article: Capital Taxation under Political Constraints (2016) Downloads
Working Paper: Capital Taxation under Political Constraints (2015) Downloads
Working Paper: Capital Taxation under Political Constraints (2014) Downloads
Working Paper: Capital Taxation under Political Constraints (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed014:191

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