Optimal capital income taxation
Optimal capital income taxation
Chapter 14 asks the question of how capital income should be taxed. One of the limitations of the standard income tax model is that it does not address intertemporal problems. In an intertemporal setting, capital income taxation becomes relevant. The theoretical case for capital income taxation is discussed in this chapter. The question of how to tax capital incomes is also very topical after several decades of growing wealth/income ratio in many advanced countries (see Piketty and Zucman, 2014). Two lines of thought in the tax literature rationalize the zero tax on capital. First the Atkinson–Stiglitz theorem, under special assumptions on preferences, implies zero tax on income from capital. The second line supporting zero capital taxation is by Chamley and Judd. When individuals differ not only in productivity (wage) as in the standard model but also, say, in inherited wealth, discount factor, longevity, we have a good case for taxing capital income.
Keywords: intertemporal, capital tax, discount factor, uncertainty, habit formation, equal opportunity, inherited wealth, income-shifting, overlapping generations
Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.
Please, subscribe or login to access full text content.
If you think you should have access to this title, please contact your librarian.
To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us .
