On optimal redistributive capital taxation

Economics

Further details

This paper addresses conflicting results regarding the optimal taxation of capital income. Judd (1985) proves that in steady state there should be no taxation of capital income. Lansing (1999) studies a particular example of one of Judd's models and finds that the optimal steady state tax on capital income is not always zero -- it is positive in some specifications, negative in some others. There appears to be a contradiction. However, Lansing's example does not satisfy the hypotheses of Judd's theorem. Under less restrictive hypotheses I prove a theorem that includes the results of both Judd and Lansing as special cases.