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Optimal Capital Taxation Revisited

Working Paper 752 | Published July 6, 2018

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V. V. Chari Consultant
Juan Pablo Nicolini Senior Research Economist and Universidad Torcuato Di Tella
Pedro Teles Banco de Portugal, Catolica Lisbon SBE, and CEPR
Optimal Capital Taxation Revisited


We revisit the question of how capital should be taxed, arguing that if governments are allowed to use the kinds of tax instruments widely used in practice, for preferences that are standard in the macroeconomic literature, the optimal approach is to never distort capital accumulation. We show that the results in the literature that lead to the presumption that capital ought to be taxed for some time arise because of the initial confiscation of wealth and because the tax system is restricted.

An updated version of this paper is available as Staff Report 571: