Is there a majority to support a capital tax cut?

Abstract

A capital income tax cut must in general be financed by increasing other taxes, and thus will have redistributive effects. This paper studies analytically the redistribution implied by a capital income tax cut in the Ramsey–Cass–Koopmans neoclassical growth model when agents differ in wealth and human capital and markets are frictionless. A few parameters affect the efficiency costs and redistributive benefits of capital taxation, and determine the set of agents who are in favor of a capital income tax cut. For plausible parameter values, a majority would lose from the tax cut, i.e. high capital taxes may be politically sustainable.