Abstract
In this paper, we study the distributional effect of a progressive wealth tax. We show that there exists a threshold level below which raising the upper bound of the tax rate reduces inequality of wealth and consumption in the long run. Such a threshold increases when the difference between the rate of return on wealth and the growth rate, r−g, and the level of wealth inequality relative to that of labour income inequality rise. The room for raising the tax progressivity to reduce inequality is restricted if r−g falls and labour income inequality rises relatively to wealth inequality.
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