A Simpler Theory of Optimal Capital Taxation
NBER Working Paper No. 22664
This paper develops a theory of optimal capital taxation with optimal tax formulas in sufficient statistics. We first consider a simple model with utility linear in consumption and heterogeneous utility for wealth. The steady-state is reached immediately and has finite elasticities of capital with respect to taxes. We address several policy issues. Our optimal tax formulas have the advantage of being easily taken to the data to simulate optimal taxes, which we do using U.S. tax return data on labor and capital incomes. Second, we show how these results can be extended to a much broader class of models.
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This paper was revised on December 28, 2016
Document Object Identifier (DOI): 10.3386/w22664