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The spirit of capitalism and optimal capital taxation

Li, Fanghui and Wang, Gaowang and Zou, Heng-fu (2020): The spirit of capitalism and optimal capital taxation. Forthcoming in: Economics Letters

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Abstract

The paper reexamines the famous Chamley-Judd zero capital tax theorem in model economies where the agents are endowed with the spirit of capitalism. It is shown that the limiting capital income tax is not zero in general and depends on the utility specifications rather than the production technology. The similar formulas of optimal capital taxes are derived in more general settings with multiple physical capitals or heterogeneous agents (capitalists and workers).

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