Working Paper: CEPR ID: DP13067
Authors: Pietro Reichlin; Nicola Borri
Abstract: We analyze the optimal combination of wealth and labor tax rates in a model where wealth-to-income ratios and wealth inequality are rising endogenously due to unbalanced technological improvement in a two-sector economy. We consider rich and poor households, financial and housing wealth, and find that a ”realistic” optimal steady state tax structure includes some taxation of labor, zero taxation of financial wealth, a housing wealth tax on rich households and a housing wealth subsidy on poor households. These findings are robust with respect to variations in the housing demand elasticity.
Keywords: Wealth Inequality; Wealth Taxes; Housing
JEL Codes: E21; E62; H2; H21; G1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| taxation of labor (H31) | wealth inequality (D31) |
| zero taxation of financial wealth (F38) | wealth inequality (D31) |
| housing wealth tax on rich households (G51) | wealth inequality (D31) |
| relative productivity in manufacturing increases (O49) | housing tax rate on rich households (H31) |