Optimal Capital Income Taxation with Means‐tested Benefits. (10th April 2017)

• Record Type: Journal Article
• Authors: Kumru, Cagri S.; Piggott, John
• Is Part Of: Scottish journal of political economy. Volume 64:Number 3(2017)
• Page Start: 227
• Page End: 262
• Publication Date: 2017-04-10
• Subjects: Great Britain -- Economic conditions -- 1945-1964 -- Periodicals; Great Britain -- Economic conditions -- 1964-1979 -- Periodicals; Great Britain -- Economic conditions -- 1979-1997 -- Periodicals; 330.9411005
• DOI: 10.1111/sjpe.12130
• Languages: English
• ISSNs: 0036-9292

Abstract

Abstract: This paper studies the interaction between capital income taxation and a means‐tested age pension. Our results document that the existence of a social insurance program financed from general revenue puts an upward pressure on the optimal tax rate. We also show that there is a negative relation between taper (benefit‐reduction) and optimal capital income tax rates. The potential welfare gain from optimizing capital taxation in the presence of a universal retirement transfer system is relatively higher. However, when the transfer is substantially means tested, the gain is lower, because the means test effectively operates as a tax on retirement capital.