Optimal Capital Income Taxation

  title={Optimal Capital Income Taxation},
  author={Andrew B. Abel},
In an economy with identical infinitely-lived households that obtain utility from leisure as well as consumption, Chamley (1986) and Judd (1985) have shown that the optimal tax system to pay for an exogenous stream of government purchases involves a zero tax rate on capital in the long run. Tax revenue is collected by a distortionary tax on labor income. Extending the results of Hall and Jorgenson (1971) to general equilibrium, I show that if purchasers of capital are permitted to deduct… CONTINUE READING


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