Optimal Taxation of Capital Income with Heterogeneous Rates of Return
Bibliographic Data
| ID | 9949902 |
|---|---|
| Authors | Aart Gerritsen (Erasmus University Rotterdam), Bas Jacobs (Vrije Universiteit Amsterdam), Kevin Spiritus (0000-0001-7360-0048, Erasmus University Rotterdam), Alexandra Victoria Rusu (Organisation de Coopération et de Développement Economiques) |
| Year | 2024 |
| Volume | 135 |
| Issue | 665 |
| Pages | 180-211 |
| Publication date | 2024-09-16 |
| Peer Reviewed | Yes |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | The Economic Journal (JOURNAL) |
| Journal identifiers | ISSN: 0013-0133 • E-ISSN: 1468-0297 |
| Publisher | Oxford University Press (OUP) (PUBLISHER) |
| DOI | 10.1093/ej/ueae083 |
| OpenAlex | W4402575235 |
| Language | EN |
| Citations received | 1 |
| References cited | 81 |
We derive the Pareto-efficient mix of non-linear taxes on labour income and capital income if people differ in their rates of return on capital. We allow for two reasons why rates of return differ: because individuals with higher ability are better able to invest their capital or because wealthier individuals enjoy scale effects in wealth accumulation. In both cases, a strictly positive tax on capital income is part of any Pareto-efficient tax system. We derive a condition for the Pareto-efficient tax mix that relies solely on empirical sufficient statistics—not on social welfare weights—and find that Pareto-efficient taxes on capital income increase with the degree of return heterogeneity. Numerical simulations for empirically plausible return heterogeneity suggest that Pareto-efficient marginal tax rates on capital income are positive and substantial
Capital (architecture · Capital income · Economics · International taxation · Labour economics · Monetary economics · Public economics · Rate of return · Tax reform · Corporate Taxation and Avoidance · Finance · Financial Literacy, Pension, Retirement Analysis · Fiscal Policy and Economic Growth
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| Citation velocity | historical |
|---|---|
| Highly cited | No |