Optimal Positive Capital Taxes at Interior Steady States
We generalize recent results of Bassetto and Benhabib (2006) and Straub and Werning (2018) in a neo-classical 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.
We are grateful to Marco Bassetto, Raquel Fernandez, Sarolta Laczó, Albert Marcet, Benjamin Moll, Debraj Ray, Alain Trannoy, and two anonymous referees for helpful suggestions and criticism. We owe special thanks to Leslie Reinhorn for his detailed comments and careful reading of an earlier draft. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Jess Benhabib & BÃ¡lint SzÅ‘ke, 2021. "Optimal Positive Capital Taxes at Interior Steady States," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(1), pages 114-150, January. citation courtesy of