Welcome to IRES!
IRES is a research centre in economics of the Université Catholique de Louvain (UCLouvain). The research centre was founded in 1928. With the Center for Operations Research and Econometrics (CORE), the Institut de Statistique, Biostatistique et Sciences Actuarielles (ISBA) and Louvain Finance (LFIN) and the platform Support en Méthodologie et Calcul Statistique (SMCS), IRES now belongs to the Louvain Institute of Data Analysis and Modeling in economics and statistics (LIDAM).
UCLouvain Economics Seminar - Jacob Bas
Jacob Bas
(Vrij Universiteit Amsterdam)
will give a presentation on
Should we tax capital income or wealth?
Abstract: The answer is: we should tax capital income. This conclusion is derived by analyzing taxes on capital income and wealth in a Merton-Samuelson multiple-period portfolio model with safe and risky assets, where risk may either be idiosyncratic or aggregate risk. Tax reforms are analyzed where taxes on capital income are increased, while taxes on wealth are decreased, such that the net intertemporal price of consumption remains constant. These tax reforms are found to be welfare improving, because taxes on capital income impose a non-distorting tax on the risk-premium, whereas taxes on wealth do not. Furthermore, such tax reforms promote risk-taking via the Domar-Musgrave effect, while keeping intertemporal distortions and savings constant. Hence, for the same distortions, taxes on capital income generate more revenue than taxes on wealth. This is unambiguously welfare improving with idiosyncratic risk and also welfare improving with aggregate risk if public goods provision is not too inefficiently large. Optimal taxes on capital income and wealth are derived. Taxes on capital income are used to tax the risk premium, while (negative) taxes on wealth should ensure intertemporal efficiency, which would boil down to a tax a rate of return allowance, joint with a tax on capital income.
Link to the paper : https://jacobs73.home.xs4all.nl/tax_capital_income_wealth.pdf