Essays on optimal wealth and income taxation

This thesis examines the design of optimal wealth and income tax policies, focusing on how the equity-efficiency trade-off of taxation is shaped by margins that, although crucial, have been overlooked in the existing literature: heterogeneity in firms’ market power, households’ portfolio choices, and joint labor supply decisions within couples. Chapter 1 studies the effects of top wealth taxation on entrepreneurs' choices and macroeconomic aggregates, taking into account that wealthier entrepreneurs operate larger firms and impose larger markups, as observed in the U.S. data. In this chapter I show that entrepreneurs imposing larger markups feature lower production and capital elasticities to the tax. Hence, neglecting the observed markups heterogeneity across entrepreneurs leads to overestimate wage and production losses induced by top wealth taxation. Furthermore, since the burden of top wealth taxation falls onto the entrepreneurs imposing the largest markups, the tax policy reduces the aggregate markup in the economy and increases the labor share of income accruing to workers. Chapter 2 examines how top wealth taxation affects households’ portfolio composition and the allocation of capital in the economy. To this end, I develop a portfolio choice model calibrated to match households’ portfolio choices across the US wealth distribution. Simulating a top wealth tax, I find that taxed households shift away from high-productivity, high-growth private equity investments toward safer, lower-return assets. This reallocation of capital reduces GDP and long-run growth, highlighting a new channel through which wealth taxation affects the economy. Chapter 3 presents simulations of optimal income taxes for singles and couples in the US economy. The general—although simple—occupational choice framework employed allows to investigate how labor supply assumptions, participation elasticities, and the government's redistributive preferences shape optimal tax schedules. Overall, these essays provide new insights into the fundamental trade-offs of income and wealth taxation, emphasizing critical margins that policymakers should consider when designing optimal fiscal policies.