In this paper we study the welfare impact of alternative tax schemes on labor and capital. We evaluate the e_ect of lowering capital income taxes on the distribution of wealth in a model with heterogeneous agents, restricting our attention to policies with constant tax rates. We calibrate and simulate the economy; we find that lowering capital taxes has two effects: i) it increases effciency in terms of aggregate production, and ii) it redistributes wealth in favor of those agents with a low wage/wealth ratio. We find that the redistributive effect dominates, and that agents with a low wage wealth ratio would experience a large loss in utility if capital income taxes were eliminated.
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