Optimal Taxation of Assets

The optimal taxation of assets requires attention to two concerns: 1) the elasticity of the supply of assets and 2) the impact of taxing assets on distributional objectives. The most efficient way to attend to these two concerns is to tax assets of different types separately, rather than having one tax on all assets. When assets are created by specialized effort rather than by saving, as with innovations, discoveries of mineral deposits and development of unregulated natural monopolies, it is interesting to consider a regime in which the government awards a prize for the creation of the asset and then collects the remaining value of the asset in taxes. Analytically, the prize is like a wage after taxes. In this perspective, prizes are awarded based on a variation on optimal taxation theory, while assets of different types are taxed in divergent ways, depending on their characteristics. Some categories of assets are abolished.