Taxing capital? not a bad idea after all!

Juan Carlos Conesa, Sagiri Kitao, Dirk Krueger

Research output: Contribution to journalArticle

181 Citations (Scopus)

Abstract

We quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic, uninsurable income shocks and permanent productivity differences of households. The optimal capital income tax rate is significantly positive at 36 percent. The optimal progressive labor income tax is, roughly, a flat tax of 23 percent with a deduction of $7,200 (relative to average household income of $42,000). The high optimal capital income tax is mainly driven by the life-cycle structure of the model, whereas the optimal progressivity of the labor income tax is attributable to the insurance and redistribution role of the tax system. (JEL E13, H21, H24, H25).

Original languageEnglish
Pages (from-to)25-48
Number of pages24
JournalAmerican Economic Review
Volume99
Issue number1
DOIs
Publication statusPublished - 2009 Mar
Externally publishedYes

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Income tax
Labor income
Capital income tax
Flat tax
Life cycle
Deduction
Redistribution
Progressivity
Overlapping generations model
Tax system
Insurance
Tax rate
Productivity
Household
Household income
Income shocks

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Taxing capital? not a bad idea after all! / Conesa, Juan Carlos; Kitao, Sagiri; Krueger, Dirk.

In: American Economic Review, Vol. 99, No. 1, 03.2009, p. 25-48.

Research output: Contribution to journalArticle

Conesa, JC, Kitao, S & Krueger, D 2009, 'Taxing capital? not a bad idea after all!', American Economic Review, vol. 99, no. 1, pp. 25-48. https://doi.org/10.1257/aer.99.1.25
Conesa, Juan Carlos ; Kitao, Sagiri ; Krueger, Dirk. / Taxing capital? not a bad idea after all!. In: American Economic Review. 2009 ; Vol. 99, No. 1. pp. 25-48.
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