Overcoming Wealth Inequality by Capital Taxes that Finance Public Investment

Date: 01 October 2018

Wealth inequality is rising in rich countries. Capital taxation used simply to finance redistribution may not be able to counteract this trend, but can increased public investment financed by higher capital taxes? We examine how such a policy affects the distribution of wealth in a setting with distinct wealth groups: dynastic savers and life-cycle savers. Our main finding is that public investment financed through capital taxes always decreases wealth inequality when the elasticity of substitution between capital and labor is moderately high. Indeed, for all elasticities of substitution greater than a threshold value, at high enough capital tax rates, dynastic savers disappear in the long run. Below these rates, both types of ...

Linus Mattauch David Klenert Ottmar Edenhofer Joseph E. Stiglitz

Economics of Sustainability

Economics of Sustainability

Overcoming Wealth Inequality by Capital Taxes that Finance Public Investment


Type: working-paper

Mattauch, L., Klenert, D., Stiglitz, J.E. and Edenhofer, O. (2018). 'Overcoming Wealth Inequality by Capital Taxes that Finance Public Investment'. NBER Working paper 25126.


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