Optimal Taxation with Homeownership and Wealth Inequality
50 Pages Posted: 3 Dec 2019 Last revised: 14 Sep 2020
Date Written: November 18, 2019
We consider optimal taxation in a model with wealth-poor and wealth-rich households, where wealth derives from business capital and home ownership, and investigate the consequences of a rising wealth inequality at steady state on these tax rates. The optimal tax structure includes some taxation of labor, zero taxation of financial and business capital, a housing wealth tax on the wealth-rich households and a housing subsidy on the wealth-poor households. When wealth inequality increases, the optimal balance between labor and housing wealth taxes depends on the source of the increasing wealth. Keywords: housing wealth, wealth inequality, optimal taxation.
Keywords: housing wealth, wealth inequality, optimal taxation
JEL Classification: E21, E62, H2, H21, G1
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