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Optimal Positive Capital Taxes at Interior Steady States†

Optimal Positive Capital Taxes at Interior Steady States† AbstractWe 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. (JEL D31, E21, H21, H23, H25, J22) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Optimal Positive Capital Taxes at Interior Steady States†

Optimal Positive Capital Taxes at Interior Steady States†

American Economic Journal: Macroeconomics , Volume 13 (1) – Jan 1, 2021

Abstract

AbstractWe 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. (JEL D31, E21, H21, H23, H25, J22)

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Publisher
American Economic Association
Copyright
Copyright © 2021 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20180191
Publisher site
See Article on Publisher Site

Abstract

AbstractWe 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. (JEL D31, E21, H21, H23, H25, J22)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Jan 1, 2021

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