Optimal Capital Taxation with Multi-dimensional Types

Project Details


We solve a multi-dimensional and dynamic model where individuals differ alongtwo dimensions: productivity and Frisch elasticity of labor supply. We decomposethe optimal capital tax formula into two components. Firstly, the social plannerprefers to tax capital income because, with a concave utility function, anindividual who saves more in period t will choose to work less in period t + 1 inresponse. This effect is in line with the literature of New dynamic public finance(NDPF). Secondly, the optimal capital tax rate is also determined by the ratio ofexpected informational rent tomorrow relative to informational rent today. If thetype i enjoys less informational rent in period t than that in period t+1, the socialplanner lowers type i’s capital tax rate. This effect leads to a progressive taxschedule on capital income. More importantly, this novel effect is only present ina multi-dimensional case.
Effective start/end date1/08/2331/07/24

UN Sustainable Development Goals

In 2015, UN member states agreed to 17 global Sustainable Development Goals (SDGs) to end poverty, protect the planet and ensure prosperity for all. This project contributes towards the following SDG(s):

  • SDG 5 - Gender Equality
  • SDG 8 - Decent Work and Economic Growth
  • SDG 11 - Sustainable Cities and Communities
  • SDG 16 - Peace, Justice and Strong Institutions
  • SDG 17 - Partnerships for the Goals


  • Optimal taxation; Savings taxation; Multi-dimensional screening


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