Working Paper: NBER ID: w25895
Authors: Jess Benhabib; Blint Székely
Abstract: We generalize recent results of Bassetto and Benhabib (2006) and Straub and Werning (2018) in a neo-classical model with endogenous labor-leisure choice where all agents are allowed to save and accumulate capital. We provide a sufficient condition under which optimal redistributive capital taxes remain at their allowed upper bound forever, even if the resulting equilibrium trajectory converges to a unique steady state with positive and finite consumption, capital, and labor. We then provide an interpretation of our sufficient condition. Using recent evidence on wealth distribution in the United States, we argue that our sufficient condition is empirically plausible.
Keywords: capital taxation; wealth distribution; neoclassical growth model; redistribution
JEL Codes: E62; H21; H23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wealth distribution (D31) | optimal capital taxation (H21) |
| preferences of wealth-poor households (D12) | capital tax policies favoring redistribution (H23) |
| intertemporal elasticity of substitution (D15) | optimal capital taxation (H21) |