A simpler theory of optimal capital taxation

By Emmanuel Saez, Stefanie Stantcheva. Journal of Public Economics, 2017

174 citations recorded by the source corpus.

This paper develops a theory of optimal capital taxation that expresses optimal tax formulas in sufficient statistics. We first consider a simple model with utility functions linear in consumption and featuring heterogeneous utility for wealth. In this case, there are no transitional dynamics, the steady-state is reached immediately and has finite elasticities of capital with respect to the net-of-tax rate. This allows for a tractable optimal tax analysis with formulas expressed in terms of empirical elasticities and social preferences that can address many important policy questions. These formulas can easily be taken to the data to simulate optimal taxes, which we do using U.S. tax return data on labor and capital incomes. Second, we show how these results can be extended to the case with concave utility for consumption. The same types of formulas carry over by appropriately defining elasticities. We show that one can recover all the results from the simpler model using a new and non standard steady state approach that respects individual preferences even with a fully general utility function.

Subfields: Accounting, Economics and Econometrics, Gender Studies

View Paper: https://www.semanticscholar.org/paper/c4936190fbb88540cc0a50bbe5d36d353d4493ab

Citations in the corpus

• Taxation and Migration: Evidence and Policy Implications (2019, unknown): “In the absence of any non-fiscal externalities, the policy prescription is particularly 9 Saez and Stantcheva (2018) derive the optimal tax rates on capital in different settings, including when capital income can be shifted abroad and there are different types of capital assets with potentially…”