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Scheuer, Florian
Wolitzky, Alexander
Year of Publication: 
Series/Report no.: 
CESifo Working Paper 5098
This paper studies optimal dynamic tax policy under the threat of political reform. A policy will be reformed ex post if a large enough political coalition supports reform; thus, sustainable policies are those that will continue to attract enough political support in the future. We find that optimal marginal capital taxes are either progressive or U-shaped, so that savings are subsidized for the poor and/or the middle class but are taxed for the rich. U-shaped capital taxes always emerge when the salient reform threat consists of radically redistributing capital and individuals' political behavior is purely determined by economic motives.
wealth inequality
capital taxation
coalition formation
Document Type: 
Working Paper

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