∗We would like to thank an anonymous referee, an associate editor, Dustin Chambers, Been-Lon Chen,

We examine the relationship between economic growth, tax policy, and distribution of capital and labor ownership in a one-sector political-economy model of endogenous growth with productive government spending financed by a proportional tax on capital income. Our analysis shows that inequality in wealth and income can be positively or negatively related to the optimal tax rate. In either environment, higher inequality leads to a lower after-tax return to capital, thereby reducing the economy’s growth rate