Optimal Capital Taxation Revisited

In a recent working paper published by the Federal Reserve Bank of Minneapolis, V. V. Chari, Juan Pablo Nicolini, and Pedro Teles revisit the question of how capital should be taxed.

Chari, Nicolini, and Teles analyze the taxation of capital, but also broaden their approach to include other taxes used in developed economies such as dividend, consumption, and wealth taxes - known as a rich tax system. Their reserach shows that in a rich tax system, capital should not be taxed in the steady state. Along the transition, capital may be taxed or subsidized. For standard preferences in the macroeconomics literature with constant consumption and labor elasticities, future capital should never be taxed.