Working Paper: CEPR ID: DP14144
Authors: Pietro Reichlin; Nicola Borri
Abstract: We consider optimal taxation in a model with wealth-poor and wealth-rich households, where wealth derives from business capital and homeownership, and investigate the consequences on these tax rates of a rising wealth inequality at steady state. The optimal tax structure includes some taxation of labor, zero taxation of financial and business capital, a housing wealth tax on the wealth-rich households and a housing subsidy on the wealth-poor households. When wealth inequality increases, the optimal balance between labor and housing wealth taxes depends on the source of the increasing wealth.
Keywords: taxation; housing; wealth
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 |
|---|---|
| Wealth tax introduction (H24) | Net wages increase (J31) |
| Wealth tax introduction (H24) | User cost of housing increase (R21) |
| Wealth tax introduction (H24) | Welfare loss for poor households (H53) |
| Wealth-to-income ratios (D31) | Optimal tax rates (H21) |
| Optimal tax structure (H21) | Positive tax on wealthy households' housing wealth (H31) |
| Optimal tax structure (H21) | Subsidy on housing costs for poor households (H53) |
| Economic conditions (E66) | Tax policy effectiveness (H29) |