Optimal Capital Taxation Revisited

V. V. Chari, Consultant

Juan Pablo Nicolini, Senior Research Economist

Pedro Teles

July 2018 | Federal Reserve Bank of Minneapolis Working Paper 752

We revisit the question of how capital should be taxed, arguing that if governments are allowed to use the kinds of tax instruments widely used in practice, for preferences that are standard in the macroeconomic literature, the optimal approach is to never distort capital accumulation. We show that the results in the literature that lead to the presumption that capital ought to be taxed for some time arise because of the initial confiscation of wealth and because the tax system is restricted.

DOI: https://doi.org/10.21034/wp.752