Positive Long Run Capital Taxation: Chamley-Judd Revisited

@inproceedings{Straub2014PositiveLR,
  title={Positive Long Run Capital Taxation: Chamley-Judd Revisited},
  author={Ludwig Straub and Iv{\'a}n Werning},
  year={2014}
}
According to the Chamley-Judd result, capital should not be taxed in the long run. In this paper, we overturn this conclusion, showing that it does not follow from the very models used to derive it. For the main model in Judd (1985), we prove that the long run tax on capital is positive and significant, whenever the intertemporal elasticity of substitution is below one. For higher elasticities, the tax converges to zero but may do so at a slow rate, after centuries of high tax rates. The main… CONTINUE READING

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