Redistributive Capital Taxation Revisited

Kina, Özlem; Slavík, Ctirad; Yazici, Hakki

doi:10.1257/mac.20200395

Abstract

This paper uses a rich quantitative model with endogenous skill acquisition to show that capital-skill complementarity provides a quantitatively significant rationale to tax capital for redistributive governments. The optimal capital income tax rate is 67%, while it is 61% in an identically calibrated model without capital-skill complementarity. The skill premium falls from 1.9 to 1.84 along the transition following the optimal reform in the capital-skill complementarity model, implying substantial indirect redistribution from skilled to unskilled workers. These results show that a redistributive government should take into account capital-skill complementarity when taxing capital.

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Redistributive Capital Taxation Revisited

Abstract

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