NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Linus Mattauch

Institute for New Economic Thinking at the Oxford
University of Oxford
Oxford Ox2 6Ed
United Kingdom

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org

NBER Working Papers and Publications

October 2018Overcoming Wealth Inequality by Capital Taxes that Finance Public Investment
with David Klenert, Joseph E. Stiglitz, Ottmar Edenhofer: w25126
Wealth inequality is rising in rich countries. Capital taxation used simply to finance redistribution may not be able to counteract this trend, but can increased public investment financed by higher capital taxes? We examine how such a policy affects the distribution of wealth in a setting with distinct wealth groups: dynastic savers and life-cycle savers. Our main finding is that public investment financed through capital taxes always decreases wealth inequality when the elasticity of substitution between capital and labor is moderately high. Indeed, for all elasticities of substitution greater than a threshold value, at high enough capital tax rates, dynastic savers disappear in the long run. Below these rates, both types of households co-exist in equilibrium with life-cycle savers gaini...
 
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