Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/226329
Authors: 
Kina, Özlem
Slavik, Ctirad
Yazici, Hakki
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8627
Abstract: 
This paper shows that capital-skill complementarity provides a quantitatively significant rationale to tax capital for redistributive governments. The optimal capital income tax rate is 60%, which is significantly higher than the optimal rate of 48% in an identically calibrated model without capital-skill complementarity. The skill premium falls from 1.9 to 1.67 along the transition following the optimal reform in the capital-skill complementarity model, implying substantial indirect redistribution from skilled to unskilled workers. These results show that a government that cares about redistribution should take into account capital-skill complementarity in production when setting the tax rate on capital income.
Subjects: 
capital taxation
capital-skill complementarity
inequality
redistribution
JEL: 
E25
J31
Document Type: 
Working Paper

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