Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/236643 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9101
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
We analyze the implications of the decline in labor’s share in national income for optimal Ramsey taxation. It is optimal to accompany the decline in labor share by raising capital taxes only if the labor share is falling because of a decline in competition or other mechanisms that raise the share of pure profits. This result holds under various alternative institutional arrangements that are relevant for optimal taxation of capital income. A quantitative application to the U.S. economy shows that soaring profit shares since the 1980's can justify a significantly increasing path of capital income taxes.
Subjects: 
capital income tax
labor share
profit share
market power
JEL: 
E60
E61
E62
Document Type: 
Working Paper
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