Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/300313 
Year of Publication: 
2024
Series/Report no.: 
Working Paper Series No. WP24:03
Publisher: 
University of Iceland, Institute of Economic Studies (IoES), Reykjavik
Abstract: 
This paper characterises optimal taxation when rates of return are affected by effort, ability, and financial advice. When the government observes wealth and capital income, the optimal marginal tax rate on capital income is positive, whereas the rate on wealth is negative in the baseline model. When wealth is not observed, the optimal marginal tax rate on capital income remains positive. If inequality in labour market productivity is sufficiently large compared to investment ability, the marginal tax rate on labour income exceeds the rate on capital income, and vice versa.
Subjects: 
Optimal taxation
capital taxation
endogenous return on capital
JEL: 
G11
H21
H24
Document Type: 
Working Paper

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