Taxation of Capital: Capital Levies and Commitment

Thu, 01 Jan 2026 00:00:00 +0000

Barro and Chari (2024) revisit the long-standing debate over optimal capital income taxation, unifying the Chamley-Judd zero-tax result, the Straub-Werning positive-tax amendment, and the Chari-Nicolini-Teles (2020) commitment-based framework into a single coherent analysis centered on the treatment of the “period-zero problem.”

The research question is fundamental: under what commitment assumptions is the optimal long-run tax rate on capital income zero, positive, or negative, and does optimal policy require special treatment of the initial period? The paper operates entirely within a deterministic neoclassical growth model with a representative household whose preferences are time-separable, separable between consumption and labor, and homothetic — the “standard preferences” of Chari et al. (2020). The government’s tax instruments are proportional consumption tax rates (τ_t^c), proportional asset-income tax rates (τ_t^k), and possibly a one-time proportional levy on initial assets (l_0 ≤ 1). No empirical estimation is performed; the contribution is analytical and quantitative through calibrated simulation.

Robert J Barro | Macro Paper Warehouse

Taxation of Capital: Capital Levies and Commitment