We generalize recent results of Bassetto and Benhabib (2006 ) and Straub and Werning (2019 ) in a neoclassical 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.
Benhabib, Jess, and Bálint Szőke.
"Optimal Positive Capital Taxes at Interior Steady States."
American Economic Journal: Macroeconomics,
Personal Income, Wealth, and Their Distributions
Macroeconomics: Consumption; Saving; Wealth
Taxation and Subsidies: Efficiency; Optimal Taxation
Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Business Taxes and Subsidies including sales and value-added (VAT)
Time Allocation and Labor Supply