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Rethinking capital and wealth taxation

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  • Thomas Piketty
  • Emmanuel Saez
  • Gabriel Zucman

Abstract

This paper reviews recent developments in the theory and practice of optimal capital taxation. We emphasize three main rationales for capital taxation. First, the frontier between capital and labour income flows is often fuzzy, thereby lending support to a broad-based, comprehensive income tax. Next, the very notions of income and consumption flows are difficult to define and measure for top wealth holders where capital gains due to asset price effects dwarf ordinary income and consumption flows. Therefore the proper way to tax billionaires is a progressive wealth tax. Finally, as individuals cannot choose their parents, there are strong meritocratic reasons why we should tax inherited wealth more than earned income or self-made wealth for which individuals can be held responsible, at least in part. This implies that the ideal fiscal system should also include a progressive inheritance tax, in addition to progressive income and wealth taxes. We then confront our prescriptions with historical experience. Although there are significant differences, we argue that observed fiscal systems in modern democracies bear important similarities with this ideal triptych.

Suggested Citation

  • Thomas Piketty & Emmanuel Saez & Gabriel Zucman, 2023. "Rethinking capital and wealth taxation," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 39(3), pages 575-591.
    • Handle: RePEc:oup:oxford:v:39:y:2023:i:3:p:575-591.
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    File URL: http://hdl.handle.net/10.1093/oxrep/grad026
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    1. Pierre Bachas & Matthew H. Fisher-Post & Anders Jensen & Gabriel Zucman, 2022. "Capital Taxation, Development, and Globalization: Evidence from a Macro-Historical Database," NBER Working Papers 29819, National Bureau of Economic Research, Inc.
    2. Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2011. "Top Incomes in the Long Run of History," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 3-71, March.
    3. Alstadsæter, Annette & Johannesen, Niels & Zucman, Gabriel, 2018. "Who owns the wealth in tax havens? Macro evidence and implications for global inequality," Journal of Public Economics, Elsevier, vol. 162(C), pages 89-100.
    4. Bachas,Pierre Jean & Fisher-Post,Matthew & Jensen,Anders & Zucman,Gabriel, 2022. "Globalization and Factor Income Taxation," Policy Research Working Paper Series 9973, The World Bank.
    5. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    6. Mona Baraké & Neef Theresa & Paul-Emmanuel Chouc & Gabriel Zucman, 2021. "Minimizing the Minimum Tax? The Critical Effect of Substance Carve-Outs," Post-Print halshs-03323087, HAL.
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    Cited by:

    1. Yang, C.C. & Zhao, Xueya & Zhu, Shenghao, 2023. "Tax progressivity and the Pareto tail of income distributions," Economics Letters, Elsevier, vol. 231(C).
    2. Jain, Parth, 2023. "What would happen if we banned billionaires?," SocArXiv kuepj, Center for Open Science.
    3. Matteo Dalle Luche & Demetrio Guzzardi & Elisa Palagi & Andrea Roventini & Alessandro Santoro, 2024. "Tackling the regressivity of the Italian tax system: An optimal taxation framework with heterogeneous returns to capital," LEM Papers Series 2024/26, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    4. İrem Güçeri & Joel Slemrod, 2023. "Taxing the rich (more)," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 39(3), pages 399-405.
    5. Jain, Parth, 2023. "What would happen if we banned billionaires?," MPRA Paper 118679, University Library of Munich, Germany.
    6. Arabela ICHIM & Mihaela NECULITA & Carmen GHELASE & Daniela Ancuta SARPE, 2023. "The Effect of Assortative Mating on Wealth Inequality, why do the Rich Choose the Rich?," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 2, pages 134-137.

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