Taxing capital income as Pigouvian correction: the role of discounting future

In this work, we find that the zero capital income tax result might not hold, even at thesteady state, when the government discount rate differs from the individual one. Asintuitive Pigouvian considerations would suggest, capital income should be taxed(subsidized) when the government is less (more) impatient than individuals are. However,a counterintuitive asymmetry emerges as for the steady state since, in the long run, capitalincome cannot be taxed because of the explosive distortionary effect of positive taxes. Theasymmetry is ruled out with a logarithmic utility function because, in this case, theanticipated policy path does not affect current individual choices and thus the cumulativedistortionary effect of taxes disappears.