On the Optimal Capital Tax Rate in Overlapping Generations Models with Capital–Skill Complementarity

On the Optimal Capital Tax Rate in Overlapping Generations Models with Capital–Skill Complementarity | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article On the Optimal Capital Tax Rate in Overlapping Generations Models with Capital–Skill Complementarity Burkhard Heer This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-6502382/v1 This work is licensed under a CC BY 4.0 License Status: Published Journal Publication published 09 Dec, 2025 Read the published version in International Tax and Public Finance → Version 1 posted 11 You are reading this latest preprint version Abstract The optimal capital income tax rate has been shown to be nonzero in overlapping generations (OLG) models, as it helps redistribute income between cohorts and individuals with different labor supply elasticities and individual productivities. We show in a medium-scale OLG model that the optimal capital income tax rate is highly sensitive to the assumption of capital–skill complementarity in production technology. The imposition of the production function of Krusell et al. (2000) rather than the standard Cobb–Douglas function increases the optimal capital tax from 9.2% to 27.3% in our benchmark model. We also study the sensitivity of this result in the context of an aging economy and find that the optimal capital income tax increases over the upcoming decades depending on possible pension reforms and debt policies. JEL classification: E13, H21, H24, H25 Capital income taxes Chamley-Judd result Skill-biased technological change Demographic change Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Published Journal Publication published 09 Dec, 2025 Read the published version in International Tax and Public Finance → Version 1 posted Editorial decision: Revision requested 13 Jul, 2025 Reviews received at journal 30 Jun, 2025 Reviews received at journal 20 Jun, 2025 Reviews received at journal 24 May, 2025 Reviewers agreed at journal 13 May, 2025 Reviewers agreed at journal 09 May, 2025 Reviewers agreed at journal 08 May, 2025 Reviewers invited by journal 02 May, 2025 Editor assigned by journal 25 Apr, 2025 Submission checks completed at journal 23 Apr, 2025 First submitted to journal 22 Apr, 2025 You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-6502382","acceptedTermsAndConditions":true,"allowDirectSubmit":false,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":451656879,"identity":"98ec025b-5c38-4dfa-9891-aa4c448ef0d2","order_by":0,"name":"Burkhard Heer","email":"data:image/png;base64,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","orcid":"","institution":"University of Augsburg","correspondingAuthor":true,"prefix":"","firstName":"Burkhard","middleName":"","lastName":"Heer","suffix":""}],"badges":[],"createdAt":"2025-04-22 09:08:08","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-6502382/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-6502382/v1","draftVersion":[],"editorialEvents":[{"content":"https://doi.org/10.1007/s10797-025-09938-0","type":"published","date":"2025-12-09T15:59:07+00:00"}],"editorialNote":"","failedWorkflow":false,"files":[{"id":98244011,"identity":"608a8c94-ed6f-4eb4-8ceb-63a4d4af5381","added_by":"auto","created_at":"2025-12-15 16:12:29","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":1006134,"visible":true,"origin":"","legend":"","description":"","filename":"optimalcapitaltaxAJEfinal.pdf","url":"https://assets-eu.researchsquare.com/files/rs-6502382/v1_covered_4fb1672a-5373-4268-be48-dd688ebed874.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"On the Optimal Capital Tax Rate in Overlapping Generations Models with Capital–Skill Complementarity","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":false,"highlight":"","institution":"","isAcceptedByJournal":true,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"international-tax-and-public-finance","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":false,"externalIdentity":"itax","sideBox":"Learn more about [International Tax and Public Finance](http://link.springer.com/journal/10797)","snPcode":"10797","submissionUrl":"https://submission.nature.com/new-submission/10797/3","title":"International Tax and Public Finance","twitterHandle":"","acdcEnabled":true,"dfaEnabled":true,"editorialSystem":"em","reportingPortfolio":"Springer Hybrid","inReviewEnabled":true,"inReviewRevisionsEnabled":false},"keywords":"Capital income taxes, Chamley-Judd result, Skill-biased technological change, Demographic change","lastPublishedDoi":"10.21203/rs.3.rs-6502382/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-6502382/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThe optimal capital income tax rate has been shown to be nonzero in overlapping generations (OLG) models, as it helps redistribute income between cohorts and individuals with different labor supply elasticities and individual productivities. 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