[bobbyd2323]

The Chamley-Judd finding of a 0% optimal capital tax is a very sticky result in optimal taxation theory. One way to think about is you want your tax system to walk as softly as possible while getting from point A to point B. Don’t distort intertemporal decisions if you don’t have to. Don’t tax elastic things when you could tax inelastic things - impose taxes on things where the optimal allocations don’t change much with the new disincentive. A wealth tax takes this result and compounds it. I should really consume my wealth instead of saving it. So you’re rewarding the spendthrift and hurting the saver (the investor). Investment and growth (and overall welfare) suffer. The caveat to all this is that a wealth tax that’s a one-time unexpected confiscation of wealth shouldn’t distort incentives, which is kind of approximated by the estate tax (poorly approximated since its still expected). But the wealth tax is really not about optimal tax theory. It’s about saying the quiet part out loud - taking from the wealthy because there’s a belief that it improves democracy. This belief is unfounded but has high political ROI.

[doukdouk]

Is it?

> In contrast to Chamley-Judd, the optimal tax on capital is positive in our model because we have finite long run elasticities of inheritance to tax rate

https://www.nber.org/papers/w17989.pdf