On the optimal taxation of capital income

We show that in models in which labor services are supplied jointly with human capital, the Chamley and Judd result on zero capital income taxation in the limit extends to labor taxes as long as accumulation technologies are constant returns to scale. Moreover, for a class of widely used preferences, consumption taxes are zero in the limit as well. However, we show by the construction of two examples that these results no longer hold for certains types of restrictions on tax rates or if there are profits generated. (C) 1997 Academic Press.