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.
Status: Published in Economic Letters
File format is application/pdf
Description: Full Text
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2020-09-26
- Working Paper Revision: Should Capital Be Taxed?