Redistributive Taxation in a Simple Perfect Foresight Model

Abstract We investigate the redistributive potential of capital taxation in an intertemporal maximizing model of capital formation. First, even unanticipated redistributive capital taxation is severely limited in its effectiveness since it depresses wages. Second, under any convergent redistributive tax policy which maximizes a Paretian social objective, the capital income tax will converge to zero, independent of the factor supply elasticities. These results are independent of workers' holdings of capital.

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