On optimal redistributive capital income taxation

The problem of optimal redistributive capital income taxation in a differential game setup is studied. Following the influential works by Judd [3] and Chamley [1], it has been quite common in the economic literature to assume that the optimal limiting tax on capital income is zero. Using a simple model of capital income taxation, proposed originally by Judd, we show that the optimal tax can be different from zero under quite general assumptions. The main result is a sufficient condition for obtaining an appropriate solution to a differential game.