Working Paper Revision
Should Capital Be Taxed?
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;
JEL Classification: C61; E22; E62; H21; H30;
https://doi.org/10.20955/wp.2020.033
Status: Published in Economic Letters
Access Documents
File(s):
File format is application/pdf
https://s3.amazonaws.com/real.stlouisfed.org/wp/2020/2020-033.pdf
Description: Full Text
Authors
Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2020-12-10
Number: 2020-033
Related Works
- Working Paper Revision (2020-12-10) : You are here.
- Working Paper Original (2020-09-26) : Should Capital Be Taxed?