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The Demand for Status and Optimal Capital Taxation

Li, Fanghui and Wang, Gaowang and Zou, Heng-fu (2019): The Demand for Status and Optimal Capital Taxation.

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Abstract

The paper examines the famous Chamley-Judd zero capital tax theorem in model economies where agents care about their social status. We show that the limiting capital income tax is not zero in general and its sign depends only on the utility specifications. Our conclusion is robust to several important extensions: the model with multiple physical capitals, the model with both human and physical capitals, and the one with heterogeneous agents.

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