Search Results

Author: Golosov, Michael
Resulting in 1 citation.
1. Golosov, Michael
Troshkin, Maxim
Tsyvinski, Aleh
Weinzierl, Matthew C.
Preference Heterogeneity and Optimal Capital Income Taxation
Working Paper No. 16619. National Bureau of Economic Research, December 2010.
Also: www.nber.org/papers/w16619.pdf
Cohort(s): NLSY79
Publisher: National Bureau of Economic Research (NBER)
Keyword(s): Armed Forces Qualifications Test (AFQT); Cognitive Ability; Earnings; Modeling; Skilled Workers; Taxes

We examine a prominent justification for capital income taxation: goods preferred by those with high ability ought to be taxed. In an environment where commodity taxes are allowed to be nonlinear functions of income and consumption, we derive an analytical expression that reveals the forces determining optimal commodity taxation. We then calibrate the model to evidence on the relationship between skills and preferences and extensively examine the quantitative case for taxes on future consumption (saving). In our baseline case of a unit intertemporal elasticity, optimal capital income tax rates are 2% on average and 4.5% on high earners. We find that the intertemporal elasticity of substitution has a substantial effect on optimal capital taxation. If the intertemporal elasticity is one-third, optimal capital income tax rates rise to 15% on average and 23% on high earners; if the intertemporal elasticity is two, optimal rates fall to 0.6% on average and 1.6% on high earners. Nevertheless, in all cases that we consider the welfare gains of using optimal capital taxes are small.
Bibliography Citation
Golosov, Michael, Maxim Troshkin, Aleh Tsyvinski and Matthew C. Weinzierl. "Preference Heterogeneity and Optimal Capital Income Taxation." Working Paper No. 16619. National Bureau of Economic Research, December 2010.