DP13067 Wealth Taxes and Inequality

Author(s): Nicola Borri, Pietro Reichlin
Publication Date: July 2018
Keyword(s): Housing, inequality, Wealth, Wealth Taxes
JEL(s): E21, E62, G1, H2, H21
Programme Areas: Public Economics, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13067

We analyze the optimal combination of wealth and labor tax rates in a model where wealth-to-income ratios and wealth inequality are rising endogenously due to unbalanced technological improvement in a two-sector economy. We consider rich and poor households, financial and housing wealth, and find that a "realistic" optimal steady state tax structure includes some taxation of labor, zero taxation of financial wealth, a housing wealth tax on rich households and a housing wealth subsidy on poor households. These findings are robust with respect to variations in the housing demand elasticity.