On the Optimal Taxation of Capital Income

On the Optimal Taxation of Capital Income
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Total Pages : 56
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ISBN-10 : IND:30000113733897
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Book Synopsis On the Optimal Taxation of Capital Income by : Larry E. Jones

Download or read book On the Optimal Taxation of Capital Income written by Larry E. Jones and published by . This book was released on 1993 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: One of the best known results in modern public finance is the Chamley-Judd result showing that the optimal tax rate on capital income is zero in the long-run. In this paper, we reexamine this result by analyzing a series of generalizations of the Chamley-Judd formulation. We show that in a model with human capital, if the tax code is sufficiently rich and there are no pure profits from accumulating human capital, then all distorting taxes are zero in the long-run under the optimal plan. In this sense, income from physical capital is not special. To gain a better understanding of these two conditions, we study examples in which they are not satisfied and show that the optimal tax rate on income from physical capital does not go to zero. In those cases where the limiting tax rate is non-zero, we calculate its value for alternative specifications of the marginal welfare cost of taxation. Our results indicate that even for conservative specifications, tax rates of 10% and higher are possible under the optimal code.


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