02140cam a22002537 4500001000600000003000500006005001700011008004100028100002000069245011600089260006600205490004100271500001500312520104300327530006101370538007201431538003601503690008401539690007201623710004201695830007601737856003701813856003601850w9046NBER20140827201400.0140827s2002 mau||||fs|||| 000 0 eng d1 aSaez, Emmanuel.10aOptimal Progressive Capital Income Taxes in the Infinite Horizon Modelh[electronic resource] /cEmmanuel Saez. aCambridge, Mass.bNational Bureau of Economic Researchc2002.1 aNBER working paper seriesvno. w9046 aJuly 2002.3 aThis paper analyzes optimal progressive capital income taxation in an infinite horizon model where individuals differ only through their initial wealth. We show that, in that context, progressive taxation is a much more powerful and efficient tool to redistribute wealth than linear taxation on which previous literature has focused. We consider progressive capital income tax schedules taking a simple two-bracket form with an exemption bracket at the bottom and a single marginal tax rate above a time varying exemption threshold. Individuals are taxed until their wealth is reduced down to the exemption threshold. When the intertemportal elasticity of substitution is not too large and the top tail of the initial wealth distribution is infinite and thick enough, the optimal exemption threshold converges to a finite limit. As a result, the optimal tax system drives all the large fortunes down a finite level and produces a truncated long-run wealth distribution. A number of numerical simulations illustrate the theoretical result. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aH21 - Efficiency • Optimal Taxation2Journal of Economic Literature class. 7aH62 - Deficit • Surplus2Journal of Economic Literature class.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w9046.4 uhttp://www.nber.org/papers/w904641uhttp://dx.doi.org/10.3386/w9046