IDEAS home Printed from https://ideas.repec.org/a/kap/itaxpf/v25y2018i5d10.1007_s10797-018-9486-3.html
   My bibliography  Save this article

Is capital back? The role of land ownership and savings behavior

Author

Listed:
  • Max Franks

    (Potsdam Institute for Climate Impact Research (PIK), Member of the Leibniz Association)

  • David Klenert

    (Mercator Research Institute on Global Commons and Climate Change)

  • Anselm Schultes

    (Potsdam Institute for Climate Impact Research (PIK), Member of the Leibniz Association)

  • Kai Lessmann

    (Potsdam Institute for Climate Impact Research (PIK), Member of the Leibniz Association
    Mercator Research Institute on Global Commons and Climate Change)

  • Ottmar Edenhofer

    (Potsdam Institute for Climate Impact Research (PIK), Member of the Leibniz Association
    Mercator Research Institute on Global Commons and Climate Change
    Berlin Institute of Technology)

Abstract

Wealth inequality is a major political concern in most OECD countries. Under this premise, we analyze different policy instruments in terms of their impact on wealth inequality and output. In a general equilibrium model, we disaggregate wealth in its capital and land components, and savings in their life-cycle and bequest components. Households are heterogeneous in their taste for leaving bequests. We show that governments have considerable freedom in reducing wealth inequality without sacrificing output: Land rent taxes enhance output due to a portfolio effect and reduce wealth inequality slightly. Bequest taxes have the highest potential to reduce inequality, and their effect on output is moderate. By contrast, we confirm the standard result that capital taxes reduce output strongly and show that they only have moderate redistributive effects. Furthermore, we find that using the tax proceeds for transfers to the young generations enhances output the most and further reduces wealth inequality.

Suggested Citation

  • Max Franks & David Klenert & Anselm Schultes & Kai Lessmann & Ottmar Edenhofer, 2018. "Is capital back? The role of land ownership and savings behavior," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(5), pages 1252-1276, October.
    • Handle: RePEc:kap:itaxpf:v:25:y:2018:i:5:d:10.1007_s10797-018-9486-3
    DOI: 10.1007/s10797-018-9486-3
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10797-018-9486-3
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10797-018-9486-3?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jess Benhabib & Alberto Bisin & Shenghao Zhu, 2011. "The Distribution of Wealth and Fiscal Policy in Economies With Finitely Lived Agents," Econometrica, Econometric Society, vol. 79(1), pages 123-157, January.
    2. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-334, June.
    3. Kalkuhl, Matthias & Fernandez Milan, Blanca & Schwerhoff, Gregor & Jakob, Michael & Hahnen, Maren & Creutzig, Felix, 2017. "Fiscal Instruments for Sustainable Development: The Case of Land Taxes," MPRA Paper 78652, University Library of Munich, Germany.
    4. Ottmar Edenhofer & Linus Mattauch & Jan Siegmeier, 2015. "Hypergeorgism: When Rent Taxation Is Socially Optimal," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 71(4), pages 474-505, December.
    5. Sandra E Black & Paul J Devereux & Petter Lundborg & Kaveh Majlesi, 2020. "Poor Little Rich Kids? The Role of Nature versus Nurture in Wealth and Other Economic Outcomes and Behaviours," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(4), pages 1683-1725.
    6. Thomas Piketty & Emmanuel Saez, 2013. "A Theory of Optimal Inheritance Taxation," Econometrica, Econometric Society, vol. 81(5), pages 1851-1886, September.
    7. Kaushik Basu & Joseph E. Stiglitz (ed.), 2016. "Inequality and Growth: Patterns and Policy," International Economic Association Series, Palgrave Macmillan, number 978-1-137-55454-3, December.
    8. Thomas Piketty & Gabriel Zucman, 2014. "Capital is Back: Wealth-Income Ratios in Rich Countries 1700–2010," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(3), pages 1255-1310.
    9. Sandra E Black & Paul J Devereux & Petter Lundborg & Kaveh Majlesi, 2020. "Poor Little Rich Kids? The Role of Nature versus Nurture in Wealth and Other Economic Outcomes and Behaviours," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(4), pages 1683-1725.
    10. Kaushik Basu & Joseph E. Stiglitz, 2016. "Inequality and Growth," World Bank Publications - Books, The World Bank Group, number 24984.
    11. Emmanuel Saez & Gabriel Zucman, 2016. "Editor's Choice Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(2), pages 519-578.
    12. Vincenzo Quadrini & José-Víctor Ríos-Rull, 1997. "Understanding the U.S. distribution of wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 21(Spr), pages 22-36.
    13. Ricardo T. Fernholz, 2017. "The distributional effects of progressive capital taxes," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 20(2), pages 99-112, April.
    14. Jens Matthias Arnold, 2008. "Do Tax Structures Affect Aggregate Economic Growth?: Empirical Evidence from a Panel of OECD Countries," OECD Economics Department Working Papers 643, OECD Publishing.
    15. Cagetti, Marco & De Nardi, Mariacristina, 2008. "Wealth Inequality: Data And Models," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S2), pages 285-313, September.
    16. repec:hal:pseose:halshs-00879813 is not listed on IDEAS
    17. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521001151, January.
    18. Stefan Homburg, 2015. "Critical remarks on Piketty's Capital in the Twenty-first Century," Applied Economics, Taylor & Francis Journals, vol. 47(14), pages 1401-1406, March.
    19. Piketty, Thomas & Saez, Emmanuel, 2012. "A Theory of Optimal Capital Taxation," CEPR Discussion Papers 8946, C.E.P.R. Discussion Papers.
    20. Kaushik Basu & Joseph E. Stiglitz (ed.), 2016. "Inequality and Growth: Patterns and Policy," International Economic Association Series, Palgrave Macmillan, number 978-1-137-55459-8, December.
    21. Ricardo T. Fernholz, 2017. "The distributional effects of progressive capital taxes," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 20(2), pages 99-112, April.
    22. Piketty, Thomas & Zucman, Gabriel, 2014. "Wealth and Inheritance in the Long Run," CEPR Discussion Papers 10072, C.E.P.R. Discussion Papers.
    23. Wojciech Kopczuk, 2012. "Taxation of Intergenerational Transfers and Wealth," NBER Working Papers 18584, National Bureau of Economic Research, Inc.
    24. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    25. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-1189, December.
    26. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
    27. Feldstein, Martin S, 1977. "The Surprising Incidence of a Tax on Pure Rent: A New Answer to an Old Question," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 349-360, April.
    28. Mountford, Andrew, 2004. "Global Analysis Of An Overlapping Generations Economy With Land," Macroeconomic Dynamics, Cambridge University Press, vol. 8(5), pages 582-595, November.
    29. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-622, May.
    30. Ludwig Straub & Iván Werning, 2020. "Positive Long-Run Capital Taxation: Chamley-Judd Revisited," American Economic Review, American Economic Association, vol. 110(1), pages 86-119, January.
    31. Petrucci, Alberto, 2006. "The incidence of a tax on pure rent in a small open economy," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 921-933, May.
    32. Pedro R.D. Bom & Jenny E. Ligthart, 2014. "What Have We Learned From Three Decades Of Research On The Productivity Of Public Capital?," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 889-916, December.
    33. Joseph E. Stiglitz, 2015. "The Origins of Inequality, and Policies to Contain It," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(2), pages 425-448, June.
    34. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-1458, December.
    35. Turnovsky, Stephen J., 1997. "Fiscal Policy In A Growing Economy With Public Capital," Macroeconomic Dynamics, Cambridge University Press, vol. 1(3), pages 615-639, September.
    36. Atkinson, Anthony B., 2015. "Inequality: what can be done?," LSE Research Online Documents on Economics 101810, London School of Economics and Political Science, LSE Library.
    37. Davies, James B, 1986. "Does Redistribution Reduce Inequality?," Journal of Labor Economics, University of Chicago Press, vol. 4(4), pages 538-559, October.
    38. repec:hal:pseose:halshs-01109372 is not listed on IDEAS
    39. Joseph E. Stiglitz, 2016. "New Theoretical Perspectives on the Distribution of Income and Wealth Among Individuals," International Economic Association Series, in: Kaushik Basu & Joseph E. Stiglitz (ed.), Inequality and Growth: Patterns and Policy, chapter 1, pages 1-71, Palgrave Macmillan.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mattauch, Linus & Klenert, David & Stiglitz, Joseph E. & Edenhofer, Ottmar, 2022. "Overcoming wealth inequality by capital taxes that finance public investment," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 383-395.
    2. Max Franks & Ottmar Edenhofer, 2020. "Optimal Redistributive Wealth Taxation When Wealth Is More Than Just Capital," CESifo Working Paper Series 8093, CESifo.
    3. , Stone Center & Ranaldi, Marco, 2020. "Distributional Aspects of Economic Systems," SocArXiv n7wj4, Center for Open Science.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Max Franks & Ottmar Edenhofer, 2020. "Optimal Redistributive Wealth Taxation When Wealth Is More Than Just Capital," CESifo Working Paper Series 8093, CESifo.
    2. Mattauch, Linus & Klenert, David & Stiglitz, Joseph E. & Edenhofer, Ottmar, 2022. "Overcoming wealth inequality by capital taxes that finance public investment," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 383-395.
    3. Spencer Bastani & Daniel Waldenström, 2020. "How Should Capital Be Taxed?," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 812-846, September.
    4. Stiglitz, Joseph E., 2018. "Pareto efficient taxation and expenditures: Pre- and re-distribution," Journal of Public Economics, Elsevier, vol. 162(C), pages 101-119.
    5. Thomas Blanchet, 2022. "Uncovering the Dynamics of the Wealth Distribution," Working Papers hal-03865295, HAL.
    6. Waldenstrom, Daniel & Bastani, Spencer, 2018. "How Should Capital Be Taxed? Theory and Evidence from Sweden," CEPR Discussion Papers 12880, C.E.P.R. Discussion Papers.
    7. Siegmeier, Jan & Mattauch, Linus & Edenhofer, Ottmar, 2018. "Capital beats coal: How collecting the climate rent increases aggregate investment," Journal of Environmental Economics and Management, Elsevier, vol. 88(C), pages 366-378.
    8. Alexander Krenek & Margit Schratzenstaller-Altzinger, 2018. "A European Net Wealth Tax," WIFO Working Papers 561, WIFO.
    9. Shenghao Zhu, 2019. "A Becker–Tomes model with investment risk," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(4), pages 951-981, June.
    10. Bonnet, Odran & Chapelle, Guillaume & Trannoy, Alain & Wasmer, Etienne, 2021. "Land is back, it should be taxed, it can be taxed," European Economic Review, Elsevier, vol. 134(C).
    11. Elinder, Mikael & Erixson, Oscar & Waldenström, Daniel, 2018. "Inheritance and wealth inequality: Evidence from population registers," Journal of Public Economics, Elsevier, vol. 165(C), pages 17-30.
    12. Gregor Schwerhoff & Ottmar Edenhofer & Marc Fleurbaey, 2020. "Taxation Of Economic Rents," Journal of Economic Surveys, Wiley Blackwell, vol. 34(2), pages 398-423, April.
    13. Kunze, Lars, 2010. "Capital taxation, long-run growth, and bequests," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1067-1082, December.
    14. Brei, Michael & Ferri, Giovanni & Gambacorta, Leonardo, 2023. "Financial structure and income inequality," Journal of International Money and Finance, Elsevier, vol. 131(C).
    15. Katrine Jakobsen & Kristian Jakobsen & Henrik Kleven & Gabriel Zucman, 2020. "Wealth Taxation and Wealth Accumulation: Theory and Evidence From Denmark," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 329-388.
    16. Spencer Bastani & Daniel Waldenström, 2018. "How should capital be taxed? The Swedish experience," Working Papers hal-02878153, HAL.
    17. Chirvi, Malte & Schneider, Cornelius, 2020. "Preferences for wealth taxation: Design, framing and the role of partisanship," arqus Discussion Papers in Quantitative Tax Research 260, arqus - Arbeitskreis Quantitative Steuerlehre.
    18. Elin Halvorsen & Thor O. Thoresen, 2021. "Distributional Effects of a Wealth Tax under Lifetime‐Dynastic Income Concepts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(1), pages 184-215, January.
    19. Kazuhiro Kurose, 2022. "A two-class economy from the multi-sectoral perspective: the controversy between Pasinetti and Meade–Hahn–Samuelson–Modigliani revisited," Evolutionary and Institutional Economics Review, Springer, vol. 19(1), pages 239-270, April.
    20. Lars Kunze, 2009. "Capital Taxation, Long-run Growth, and Bequests," Ruhr Economic Papers 0113, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

    More about this item

    Keywords

    Fiscal policy; Wealth distribution; Inequality; Capital tax; Bequests; Land rent tax;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:itaxpf:v:25:y:2018:i:5:d:10.1007_s10797-018-9486-3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.