On optimal redistributive capital taxation.

This paper addresses conicting results regarding the optimal taxation of capital income. Judd (1985) proves that in steady state there should be no taxation of capital income. Lansing (1999) studies a logarithmic example of one of Judds models and nds that the optimal steady state tax on capital income is not always zero it is positive in some specications, negative in some others. There appears to be a contradiction. However, I show that Lansing derives his result by relaxing the hypotheses of Judds theorem with less restrictive hypotheses, a wider range of outcomes is possible. This raises the question of whether yet more outcomes are possible with yet weaker hypotheses. I nd that the answer is no: the only possible interior steady states for the model are essentially Judds zero capital tax and Lansings unitary elasticity of marginal utility