Events at CERGE-EI

Dr. Ctirad Slavík

Goethe University Frankfurt, Germany

Authors: Ctirad Slavík and Hakki Yazici

Abstract: The effective taxes on capital returns differ depending on capital type in the U.S. tax code. This paper uncovers a novel reason for the optimality of differential capital taxation. We set up a model with two types of capital - equipments and structures - and equipment-skill complementarity. We show that it is optimal to tax equipments at a higher rate than structures. In a calibrated model, the optimal tax differential rises from 27 to 40 percentage points over the transition to steady state. The welfare gains of optimal differential capital taxation can be as high as 0.4% of lifetime consumption.

JEL classiffcation: E62, H21.

Keywords: Differential capital asset taxation, equipment capital, structure capital, capital-skill complementarity.

Full Text:  “Machines, Buildings, and Optimal Dynamic Taxes”