On growth-optimal tax rates and the issue of wealth inequalities

DOI10.1088/1742-5468/2015/11/P11011MaRDI QIDQ3302145zbMATH OpenOpenAlexFDO

Authors Jean-Philippe Bouchaud

Publication date 11 August 2020

Published in Journal of Statistical Mechanics: Theory and Experiment (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1508.00275

Mathematics Subject Classification ID

Macroeconomic theory (monetary models, models of taxation) (91B64) Applications of statistical and quantum mechanics to economics (econophysics) (91B80)

Abstract: We introduce a highly stylized, yet non trivial model of the economy, with a public and private sector coupled through a wealth tax and a redistribution policy. The model can be fully solved analytically, and allows one to address the question of optimal taxation and of wealth inequalities. We find that according to the assumption made on the relative performance of public and private sectors, three situations are possible. Not surprisingly, the optimal wealth tax rate is either 0% for a deeply dysfunctional government and/or highly productive private sector, or 100 % for a highly efficient public sector and/or debilitated/risk averse private investors. If the gap between the public/private performance is moderate, there is an optimal positive wealth tax rate maximizing economic growth, even -- counter-intuitively -- when the private sector generates more growth. The compromise between profitable private investments and taxation however leads to a residual level of inequalities. The mechanism leading to an optimal growth rate is related the well-known explore/exploit trade-off.

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Cites work

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Cited in

(8)

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• The advantage of capitalism vs. socialism depends on the criterion
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• Use It or Lose It: Efficiency and Redistributional Effects of Wealth Taxation
• Evolution of cooperation in networked heterogeneous fluctuating environments

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