Optimal Positive Capital Taxes at Interior Steady States

38 Pages Posted: 7 Jun 2019 Last revised: 4 Apr 2021

See all articles by Jess Benhabib

Jess Benhabib

New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Balint Szoke

Board of Governors of the Federal Reserve System

Date Written: May 2019

Abstract

We generalize recent results of Bassetto and Benhabib (2006) and Straub and Werning (2018) in a neo-classical model with endogenous labor-leisure choice where all agents are allowed to save and accumulate capital. We provide a sufficient condition under which optimal redistributive capital taxes remain at their allowed upper bound forever, even if the resulting equilibrium trajectory converges to a unique steady state with positive and finite consumption, capital, and labor. We then provide an interpretation of our sufficient condition. Using recent evidence on wealth distribution in the United States, we argue that our sufficient condition is empirically plausible.

Suggested Citation

Benhabib, Jess and Szoke, Balint, Optimal Positive Capital Taxes at Interior Steady States (May 2019). NBER Working Paper No. w25895, Available at SSRN: https://ssrn.com/abstract=3399273

Jess Benhabib (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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Balint Szoke

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