Here are a few interesting links from Ivan Werning on capital taxation, Piketty, and political economy.
1. Optimal Wealth Taxation: Redistribution and Political Economy – slides from his plenary at SED 2014
Judd (1985) and Chamley (1986) showed that capital should not be taxed in a steady state. I revisit these results and their interpretation. My analysis casts doubt on their applicability. For Judd’s setting, I find that the zero tax steady state is only approached in special cases and, when it is, at a very slow rate, after centuries of high capital taxa- tion. In Chamley’s setting, the zero tax result requires sufficient upfront expropriation of capital and large government wealth accumulation. In contrast to an example in Chamley, I show that taxes may remain positive forever if constrained by a sufficiently low upper bound. Finally, I show that both results are driven by an infinite elasticity in the present value response of savings with respect to an infinitely distant future changes in the interest rate.
3. Ivan Werning and Emmanuel Farhi: Bequest Taxation and r − g
We consider the role of the gap between the return to capital, r, and the growth rate of the economy, g, in a political economy model of bequest taxation. Higher values of r − g lead to higher wealth inequality, resulting in higher and more progressive taxes on bequest.