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Optimal Positive Capital Taxes at Interior Steady States

  • Jess Benhabib
  • Bálint Szőke
American Economic Journal: Macroeconomics
vol. 13, no. 1, January 2021
(pp. 114-50)
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Abstract

We generalize recent results of Bassetto and Benhabib (2006 ) and Straub and Werning (2019 ) in a neoclassical model with endogenous labor-leisure choice where all agents are allowed to save and accumulate capital. We provide a sufficient condition under which optimal redistributive capital taxes remain at their allowed upper bound forever, even if the resulting equilibrium trajectory converges to a unique steady state with positive and finite consumption, capital, and labor. We then provide an interpretation of our sufficient condition. Using recent evidence on wealth distribution in the United States, we argue that our sufficient condition is empirically plausible.

Citation

Benhabib, Jess, and Bálint Szőke. 2021. "Optimal Positive Capital Taxes at Interior Steady States." American Economic Journal: Macroeconomics, 13 (1): 114-50. DOI: 10.1257/mac.20180191

Additional Materials

JEL Classification

  • D31 Personal Income, Wealth, and Their Distributions
  • E21 Macroeconomics: Consumption; Saving; Wealth
  • H21 Taxation and Subsidies: Efficiency; Optimal Taxation
  • H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
  • H25 Business Taxes and Subsidies including sales and value-added (VAT)
  • J22 Time Allocation and Labor Supply
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