Can redistribution be a reason to tax capital?

• Author(s): Guerreiro, João Pedro Teodoro
• Date: 2016
• Persistent ID: http://hdl.handle.net/10400.14/20232
• Origin: Veritati - Repositório Institucional da Universidade Católica Portuguesa
• Document Type: Master thesis
• Language: English
• Contributor(s): Veritati; Teles, Pedro Miguel Pinho de

Description

What is the optimal tax on capital when agents differ in wealth and income profiles? In this thesis, I develop a model of agent heterogeneity to consider optimal Ramsey taxation of labor, capital and consumption. When the only source of heterogeneity is initial wealth, and abstracting from the initial confiscation, the optimal tax on capital is zero, provided some relevant elasticities are constant. When, instead, differences are also in terms of labor characteristics, it may, in general, be desirable to use capital taxes. This follows from the imperfection of the tax system, resulting from the restriction that the same income tax must be levied on the different types of labor. This is then related to the findings of the representative agent literature with incomplete set of instruments. The results suggest that labor differences may provide a strong rational in favor of using capital taxes.