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<p>We study the impact of flat and progressive capital taxes in a continuous-time heterogeneous-agent incomplete markets model with sudden surges in capital income. We find that simple flat taxes on all capital income can increase wealth inequality relative to labor income inequality. But progressive taxes by taxing sudden surges at a higher rate can reduce wealth inequality and cause less distortion than flat taxation, provided that the government uses tax revenues to finance more public debt as liquidity for precautionary saving.</p>

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Taxing Sudden Capital Income Surges

  • 期刊论文

  • 发表日期：

    2025年6月13日

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  • Wei Cui,
  • Jianjun Miao

摘要

We study the impact of flat and progressive capital taxes in a continuous-time heterogeneous-agent incomplete markets model with sudden surges in capital income. We find that simple flat taxes on all capital income can increase wealth inequality relative to labor income inequality. But progressive taxes by taxing sudden surges at a higher rate can reduce wealth inequality and cause less distortion than flat taxation, provided that the government uses tax revenues to finance more public debt as liquidity for precautionary saving.