How much capital should be taxed? A review of the quantitative and empirical literature

Spataro, Luca and Crescioli, Tommaso ORCID: 0000-0002-4365-2522 (2023) How much capital should be taxed? A review of the quantitative and empirical literature. Journal of Economic Surveys. ISSN 0950-0804

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Abstract

This paper reviews the literature providing quantitative and empirical results on capital taxation. In doing this, we differentiate between individual and corporate taxes, respectively. From existing literature, it emerges that capital income taxes for individuals increase with the degree of heterogeneity within the population, market competition, and the economy's maturity, being negative (i.e., subsidy) in the presence of monopolistic competition or developing countries, no higher than 15% in Mirrleesian economies and as high as 45% when coupled with incomplete insurance markets and labor income taxes in competitive-closed economies. Excessively high wealth tax rates for redistributive purposes, however, are prevented by the larger tax elasticity of rich (−1.15) with respect to poor (−0.09) individuals. Negative tax elasticities concerning employment (from −0.5 to −0.2), innovation (from −2.8 to −1.3), and investments (−4.7) suggest low corporate taxes, whose magnitude should be negatively related to the degree of the economy's openness, given also the possibility for firms to relocate abroad. Finally, although still inconclusive, the main conclusions concerning dividend taxes suggest that tax rates increase with the firm's size and, thus, be set at low levels for start-ups.

Item Type:	Article
Official URL:	https://onlinelibrary.wiley.com/journal/14676419
Additional Information:	© 2023 The Authors
Divisions:	European Institute
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HJ Public Finance
Date Deposited:	24 May 2024 14:39
Last Modified:	06 Jul 2024 02:18
URI:	http://eprints.lse.ac.uk/id/eprint/123640

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